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During the first three weeks of January, we discussed problems related to the economy in this column, including being laid off and finding work -- topics of immediate concern to many BuyandHolders and their friends. Click HERE to read.
This week we want to tell you about a possible tax break if you are looking for a new job -- that some of the costs involved in a job search are actually tax deductible. The IRS doesn’t exactly shout this news from the rafters, therefore we are.
Deducting Job Hunting Expenses
As soon as you start your job search, create a separate file in which to track of the expenses involved. Be sure to write down or enter all of them with a date attached. And, keep all receipts as backup documentation. Many of your expenses may turn out to be deductible from your taxable income under the category “miscellaneous itemized deductions.”
A deduction is an expense you may subtract from your income that lowers your final taxable income. Deductions include mortgage interest, property taxes, charitable contributions, many retirement account contributions and, of course, qualified job hunting expenses.
Not everyone on a job hunt however qualifies for these deductions. First of all, you must be looking for a job in the same field in which you were previously employed. So if you are an engineer, you must be looking for a job as an engineer. You can’t be looking for a job as a travel agent or an elephant trainer. That ruling, of course, eliminates the tax break if this is your first job search.
Second, you won’t get a deduction if your search begins after taking “a substantial break,” perhaps to board a freighter for a cruise around the world. Your search must be within a reasonable amount of time after you lost or left your previous job. You may want to consult your tax preparer about the definition of “reasonable” if you’ve been lollygagging about for a while.
At tax time, open your folder and itemize your expenses on IRS Schedule A. Attach it to your 1040.
CAUTION: You can subtract your job hunting expenses from your income only if they add up to more than 2% of your adjusted gross income (AGI). For example, if your AGI is $50,000 and you have $1,500 in appropriate expenses, only $500 is deductible. That’s $1,500 minus $1,000 (2% of $50,000).
Adjusted gross income is arrived at by adding up all your income for the year to get your gross income and then subtracting adjustments. Adjustments include: contributions to your qualified retirement accounts, alimony payments, qualified moving expenses, student loan interest, medical savings account deductions and, if you’re self-employed, half the self-employment tax. Once all your adjustments have been subtracted, you have your AGI.
Tax Deductible Job Hunting Expenses
- Employment agency fees
- Career counseling fees
- Local and long distance phone calls
- Outplacement services
- Printing & mailing of search letters
- Printing & mailing your resume
- Resume preparation help
- Start-up business costs
- Travel expenses to/from job interviews, including out-of-town
- Want ads in newspapers & journals
- Moving expenses to a new job at least 50 miles away
Note: If you are going to an out-of-town interview, your train or plane tickets, hotels, meals, taxis and miscellaneous expenses are deductible. But don’t try to turn your trip into a vacation and deduct the full amount. This is something the IRS watches very, very closely.
A final word: Your search does not need to be successful in order to be deductible!
For Further Information
- You’ll find all the details in IRS Publication #529, “Miscellaneous Deductions.” Download it at: www.irs.gov.
- And, if you decide at this point to start your own business, keep in mind that certain startup expenses are deductible. These are spelled out in IRS Publication #535, “Business Expenses,” also at: www.irs.gov.
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