Key Takeaways
- The moving industry requires careful navigation of federal tax topics such as depreciation of business assets and proper worker classification for federal employment tax purposes.
- Strategic tax planning and good recordkeeping can help moving companies claim allowable deductions and meet federal filing and payment responsibilities.
- Some multi-state compliance responsibilities are state-level (not administered by the IRS), so it helps to separate federal requirements from state tax rules when planning.
Industry Overview
The moving industry encompasses a range of services from residential relocations to commercial logistics. This sector is characterized by its seasonal peaks, reliance on a transient workforce, and unique operational expenses.
In this guide, we’ll explore financial and tax considerations commonly relevant to moving companies. While some challenges may feel “industry-specific,” many federal tax rules apply broadly based on the type of assets a business uses and how it pays and classifies its workers.
Key Tax Considerations
Depreciation of Assets
Moving companies invest heavily in trucks and equipment. Understanding how depreciation works for federal tax purposes is important because depreciation is generally a deduction that can reduce taxable income over time.
Publication 946 explains the federal depreciation rules, including the Modified Accelerated Cost Recovery System (MACRS), and it also discusses elections and additional depreciation rules that may apply to qualifying property. Depreciation and related elections are typically reported on Form 4562.
Example: Tom owns a moving company and recently invested in several new moving trucks and equipment. To understand how depreciation deductions work, Tom consulted with a CPA who explained that MACRS is commonly used to recover the cost of qualifying property over time. Tom also learned that there may be elections and additional depreciation rules that can apply depending on the property and the year placed in service, and that depreciation is generally reported on Form 4562. By planning ahead and keeping good records, Tom was better prepared to claim allowable deductions and understand how those deductions could affect his taxable income.
Employee vs. Contractor Classification
Correctly classifying workers as employees or independent contractors is a common challenge. For federal tax purposes, the IRS generally applies common law rules focused on the degree of control and independence in the working relationship. Classification can affect withholding and federal employment tax responsibilities.
It’s also important not to treat “issuing a 1099” as a universal solution. Whether an information return is required—and which form applies—depends on the type of payment and the relationship. When worker status is unclear after reviewing the relevant factors, Form SS-8 can be used to request an IRS determination of worker status.
Example: Sarah runs a moving company specializing in college and university moving services. She hires both full-time employees and seasonal workers. To reduce the risk of misclassification, Sarah worked with a tax advisor to evaluate whether workers were employees or independent contractors based on the level of direction and control in the relationship. Sarah also learned that classification affects federal withholding and employment tax responsibilities, and that information reporting for nonemployees depends on the type of payments made and the applicable IRS form requirements. When she had a situation that wasn’t clear, she learned that Form SS-8 is available to request an IRS determination.
Interstate Tax Obligations
For moving companies operating across state lines, compliance can involve multiple state tax rules and filing requirements. These state-level obligations are generally outside IRS administration, but they can still be an important part of overall tax planning and recordkeeping for a multi-state moving business.
Example: Mike’s long-distance moving company operates in multiple states. Navigating state tax rules was challenging, so Mike sought help from a tax professional. Together, they reviewed each state’s filing and payment requirements that could apply to the business and set up a process to track where the company operated and what records were needed. This proactive approach helped Mike stay organised and reduce the risk of missed state filings.