Tax-smart Tips for Switching Jobs
Changing your employer can be a major life adjustment. As with any transition, there will likely be many moving parts and various details to consider. It can be very easy to overlook something when you are shifting to a new professional situation.
As you look forward to starting your new job, it's important to keep in mind how your employment change will affect your taxes. Here are three tax-smart tips that'll put you in the best position come tax season:
Roll over your retirement plan. You may be tempted to cash out the balance in an employer-sponsored plan such as a 401(k). But remember that distributions from these plans are generally taxable. Instead, ask your plan administrator to make a direct rollover to your IRA or another qualified plan. This avoids the additional 10 percent penalty on early distributions you would face if you're under age 59½. Your retirement money will continue to grow tax-deferred.
Adjust your withholding. Assess your overall tax situation before you complete a Form W-4 for your new employer. Did you receive severance pay, unemployment compensation or other taxable income? You might need to increase your withholding to avoid an unexpected tax bill when you file your return.
Don't expect to deduct job-related moving expenses. Unless you are a member of the U.S. Armed Forces, you can no longer deduct moving expenses related to your employment.
More tax issues to consider when you change jobs include stock options, employment-related educational expenses and the sale of your home. Give us a call. We'll be happy to help you with your new employment tax updates.