 Hello and welcome to the session in which we would look at two adjustments to income, which are moving expense for members of the armed forces and the penalty on early withdrawal or savings. I'm going to keep this penalty on early withdrawals and savings till the end of the session. I will discuss more the moving expense and the moving expense is only specific for active members of the armed forces and they have to complete the form. 3903. Now this is part of the adjustment. So those two adjustments notice their online 13 and 17 on form. Schedule and schedule one form 2020. Now again, if you're dealing with 2122, they should be still an adjustment, assuming the law does not change, but they might be in a different place. Now again, once we add up all the adjustments, let's assume all of them at up to 2000. The adjustments, let me just, you know, let's assume 1000 for moving expenses and 1000 for penalty on early withdrawal. That's stiff penalty, but that's okay just to make the point. Total adjustments of 2000. Those adjustments goes on adjustments to income. Schedule one, line 22, 2000. They are before. They are before you get to adjusted gross income. So those adjustments are for AGI. This is important. So if your total income is 50,000, you can deduct 2000. You can deduct 2000. Then your adjusted gross income is 48,000. So those are for AGI. That's important. I know I keep repeating this every time. And the reason is simple. You want to understand which adjustments are for AGI and which adjustments are from AGI. We haven't discussed those yet. We will discuss them later because some of the questions on the CBA exam, on the enrolled agents exam, are to determine whether this adjustment, this deduction is at for AGI or is it from AGI. It makes a huge difference. Okay. 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If you haven't done so, like this recording, share it, connect with me on Instagram and Facebook. So let's take a look at the moving expense deduction. Okay. Now, the Tax Cuts and Jobs Act of 2017 suspended this deduction till 2025. So the only people who can take the moving expense deduction are active U.S. armed forces. In this topic, you used to give students a lot of trouble. The student hated moving expense deduction when I used to teach it. You know, students did not like that topic. So it's suspended till 2025. And who knows, it might be suspended again or changed. But for now, you don't have to worry about the moving expenses, except for the rules for the armed forces, which are much simpler than for private individuals. So let's take a look at the rules. The moving expense deduction and the execution applies to members of the armed forces and they have to be active members on active duty, not on active duty, their spouse and their dependent. And we'll define under what circumstances, as long as their spouse and dependent are member of their household, of course, you cannot deduct, obviously, and you can deduct only unreimbursed moving expense. You cannot deduct reimbursed moving expenses. So if you spend the money, then they gave it to you as reimbursement, you cannot deduct it. So you can only deduct the amount that they did not reimburse you. Obviously, but we have to state this. Okay. And it has to be a permanent change of state station. So if you're in the armed forces, they might move you from one state to another. So it has to be permanent and move from their home to their first post of active duty that that that is that is they can take the deduction either from your first move from your home, a move from one post to the other. So you were, you were, you were stationed in Hawaii, you moved to Alaska. Well, that's that's also a sport of your active duty. Those moving expenses are deduction, a move from your last post to their home, or to a nearer point in the United States. Again, that will apply in the move must occur within one year of ending their active duty or within period allowed under the joint travel regulation. If you are in the armed forces, you know, what does that mean? I really don't know. But you would know if you're in the armed forces. Now this is those are what qualified ads move. Now we're going to also have moves outside the US, which we'll talk about in a moment. So what happened if the government gives you any reimbursement or they provide any services to you? Well, service member would not include in their income the value of moving and storage services provided by the government because of the permanent change of station. So if the government pays for it or they provide you any benefit, you don't have to include that benefit in your income. Also, you would not include income amount to receive as a this look at this location allowance, temporary enlarging expense, temporary enlarging allowances or moving allowances. Also, if they give you money for those purposes, you will not include them. However, generally, not generally, if the total reimbursement or allowance that service member received from the government because of the move are more greater than their actual moving expenses, the access will be included in their W2. So if they give you more money than what you needed to move, then you will include that. If any reimbursement or allowance other than this location temporary lodging, which are this part here or moving expense exceed the cost of moving and the access is not included under wages. If they did not include under wages, then you must include them on your in your income on your gross income. So if they gave you more, then you will include it if it's not in the W2. That's it. That's simply what we are saying. Now, what can you deduct? What about expenses? So service members can deduct the expenses of moving their household goods and personal effect, including expenses for hauling a trailer, packing, creating and transit storage and insurance. They cannot deduct any moving furniture or other goods that were purchased on the way from their old home to their new home. They cannot deduct any new purchases on the way there. That's not included. And you can only include the cost of storing and ensuring their household and personal effect within any period of 30 consecutive days after the day these goods and effect are moved from their former home and before they are delivered to their new home. So you have 30 days to basically move. So this is the this is one expense moving expenses, moving your furniture, so on and so forth. You don't have travel expense transportation. Okay, so you can deduct traveling expense, including lodging but not meals. So if you eat on the way there, that's not deductible because you have to eat anyway. Okay, that include car expense and airfare. They can deduct if you're taking your car expense, you can deduct either actual out of pocket expense such as gas and oil and you obviously have to keep track of that or standard mileage, whatever that standard mileage for the year it that year is it happens to be 17 cents for 2020. Now again, every time you see here in my lecture, those figures might change if you're looking at 2021 2022 2023. Obviously, this will go up unless really the oil go go down in price. Okay, so they can add any parking fees and tolls. Okay, so parking fees and tolls are independent whether you would use the standard mileage or the actual expense. You cannot again deduct expenses for meals, nor you can deduct any expenses, unnecessary side trips or very expensive lodging. Okay, those you cannot deduct. So it has to be reasonable. It has to be reasonable. What about if you are traveling overseas? Okay, for a foreign move, foreign move means means outside the US or any of the US possessing. For example, you're moving from here to Germany to Europe or to Japan. The deductible moving expense described earlier are expended to include reasonable expenses such as moving the service members household and personal effect to and from storage. Obviously, if you're going away overseas, you might put yourself in this, you might put your stuff in the storage because you're not going to take it with you. And storing these items for part or all the time the new job location remains of the service member main duty. Now while you're away, you want to keep them there and you have to pay. That's considered reasonable expense. Therefore, you can deduct those. The new duty location must be outside the US obviously because we are talking here about a foreign outside the US move. Now who is considered spouse independent? A member of the service members household is anyone who has both the service member, former's home and the new home as his main or her main home. So that's your main home. Then you are part of that household. Okay, it does not include a tenant. If you have somebody renting your place, that's not part of your household because they are technically a tenant or an employee, unless that person can be claimed as a dependent. If that person is your dependent, then that's a different story than their part of your household. So this is what, you know, spouse and dependent. So anyone living with you as long as you can claim them as dependent, they're part of your household. Now, you have to complete a form called not form, form number 3903 moving expense. Let's take a look at this real quick. So notice you have transportation and storage and you have traveled and you add line one and two. So simply put, do not include in line one through three expenses for moving services provided by the government also do not include any expenses that were reimbursed by any allowance that the member does not have to include in his or her income. So you only include the qualified cost here. Let's assume it's $1,500. So total line one and two is $1,500. On line four, enter the amount the government paid you for the expenses listed on line one and two. And that is not included in box one of your W2 wages. This amount should not should be shown in box 12 of form W2. So simply put, let's assume you incur $1,500. The government paid you $800 of that. They reimbursed you for $800. What's left is $700 obviously. So this is what happens. So you're moving deduction becomes $700. Now if they pay you more, then you're moving deduction that it's not included. Then you have to go back and include that income. So if they paid you $2,000, then guess what? You don't have any deduction and the difference should be part of your income, should be part of your income. Now let's move to the penalty on early savings. Penalty on early savings, when does it occur? When you have a certificate of deposit in the bank or some type of a savings account, you know, CD means certificate of deposit. You have to hold it for a period of time. Usually they pay you higher interest because you lock your money. It could range from three months to five years. Often the rules associated with this financial instrument is you have to keep them there. You are entitled to the interest only if you keep them there. For example, if you have a two-year CD and you took it out before the two years because you needed the money, guess what? This is called the premature withdrawals. And as a result of this premature withdrawals, they will give you a penalty. For example, if you want your money, we'll give it back to you, but there's a 10% penalty or a 5% penalty or something like that. So if the taxpayer incurred an early withdrawals of savings penalty, the taxpayer is entitled to report this as a deduction for AGI online 17 right here. Again, the line could change, but this is where it is now online 17. And this is usually the assumption here is you took the money because you had an emergency. Why would you take your money if you did not have an emergency? Therefore, the government is giving you a break. That's the idea behind it. That's the basic idea. So simply put, at the end of this recording, I'm going to remind you, especially if you're a CPA candidate or an enrolled agent, take a look at my website, farhatlectures.com. I can help you understand the material differently. I can provide you with an alternative explanation as well as resources. Take a look. Give me a chance. I might be able to help you. 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