Your Job Search Expenses May Be Tax-Deductible

Help Wanted Sign; image credit: underbid.comHere’s a friendly reminder for those on the hunt for a new job. Many job-search expenses may be tax-deductible, so knowing the rules can save you money at tax time. As you might expect from the IRS, the rules aren’t straightforward:

  • You have to be looking for a new job in your present occupation, even if you never get one.
  • There cannot be a “substantial break” between the ending of your last job and your looking for a new one. Vague? Yep.
  • You cannot be looking for a job for the first time. Sorry, recent graduates.
  • Job search expenses are lumped in with many other “miscellaneous deductions”, such as the home-office deduction, union dues, work-related education expenses, bad business debt, tax prep fees. These are only deductible from your income if you itemize deductions and only to the extent that taken together they exceed 2% of your adjusted gross income. But if you’re out of work, 2% may not be a very high hurdle.
  • If you get reimbursed for any your expenses, then it’s no longer deductible. At least that one makes sense.

What qualifies as an expense?

  1. Employment and outplacement agency fees. This includes “career consultants” and the like. I don’t know if paying these are necessarily a good idea in the first place, but they can be deducted.
  2. Resume preparation costs.. You can deduct amounts you spend for preparing and mailing copies of your resume to prospective employers. These include paper, postage, envelopes, and printing/copying costs.
  3. Travel and transportation expenses. If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area if the trip is “primarily” to look for a new job. In other words, you need to spend more time looking for work than doing any personal activities. Roundtrip airfare, car rental, and hotel stays can add up quickly. If you drive, you can deduct the standard mileage amount (55.5 cents per mile in 2012).

    Keep good records of your efforts and any meetings and/or interviews with prospective employers. Write down the time, date, and place of any event, and keep business cards and food receipts.

Things you can’t deduct include services like residential home phone service, cell phone plans, and high-speed internet.

This is all taken from the notoriously vague IRS Publication 529 – Miscellaneous Deductions. Look under Unreimbursed Employee Expenses > Job Search Expenses. Keeping great records for everything is key. If you have an accountant, be sure to ask them how to best take advantage of this area. Finally, if you do land a new job, don’t forget that you can also deduct moving expenses:

To qualify for the moving expense deduction, you must satisfy two tests. Under the first test, the “distance test”, your new workplace must be at least 50 miles farther from your old home than your old job location was from your old home. If you had no previous workplace, your new job location must be at least 50 miles from your old home.

Comments

  1. If you just quit/lost a job, don’t forget to file for unemployment. Although not specifically on your topic, but people simply do not want to collect unemployment. Depending on your State, you can claim unemployment for quite some time (my friend got his checks for over 6 months) and live off of it rather than your emergency savings. I only know of one friend out of several who claimed unemployment. Most cited either pride or hassle reasons for not doing so, despite the latter being no hassle in reality.

  2. I don’t know about all areas, but when I looked into it you couldn’t have quit voluntarily and claim unemployment. Makes sense, I suppose.

    The ironic thing is that I am the owner/employee of my own S-Corp and I have to pay unemployment insurance somehow based on how it is set up. So technically I could fire myself and claim unemployment.

  3. yes, unemployment rules differ. I know that my friends have quit voluntarily and claimed unemployment.

  4. I’m not sure about unemployment benefits and your S-Corp. I guess it depends on the state in which you file a claim, but some states exclude beneficial owners from collecting unemployment benefits. The threshold is typically around 10% ownership.

  5. Jenna, Adaptu Community Manager says:

    Great reminder. Thanks!

  6. Another meaningless tax deduction difficult to qualify for like most of them.

  7. That’s interesting. I had no idea that you could deduct from taxes for this. Is there a limit that can be put on this. I’m just curious, because I have had friends searching for a year that have racked up quite a few expenses.

Trackbacks

  1. The Standup CPA » Blog Archive » Are Joe Biden’s Hair Plugs Tax Deductible? says:

    [...] I would argue that it was Joe’s appearance that helped get him elected to the US Senate every year since first elected in 1878, it was the reason then-Senator Barack Obama picked him to be his running mate, and the reason that the US voters elected them to office.  As such, the cost of his hair plugs can be considered a job-hunting expense and therefore should be deductible for federal income tax purposes. [...]

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