- Days left

Overlooked deductions: job search expenses

job search expensesThe national unemployment rate stands at a whopping 10% -- higher than it has been for years. Despite all the talk in Washington about creating new jobs, the outlook is pretty scary: When the economy was recovering from the 2001 recession, it took two years to reduce the unemployment rate by nearly a full percentage point. For that to happen in 2010, a net total of about 3 million jobs would have to be created.

Realistically, that means tens of millions of Americans were searching for new jobs in 2009. Job interviews, resumes, and fees related to a job search can add up. Fortunately, those expenses are deductible on your federal income tax return. Here's what you need to know:

Job search expenses are only available as a deduction if you itemize. If you itemize, you'll deduct these expenses on Schedule A, together with your medical and dental expenses, charitable contributions and home mortgage interest payments.

Job search expenses are considered miscellaneous expenses subject to a 2% "floor." This means the total of your miscellaneous expenses (including tax prep fees, work clothes and safe deposit box fees) must be above 2% of your adjusted gross income (AGI) before you can take any deductions. For example, assuming your AGI is $25,000, you would have to report combined miscellaneous expenses of more than $500 (2% of $25,000) before any part of your expenses are deductible, and then you can only deduct amount over $500. So, in our example, if your expenses total $800, you may deduct $300: $800 worth of expenses less $500 ($25,000 AGI x 2%) = $300.

To deduct the cost of looking for a new job, the expenses must be spent on a job search in your current occupation. You cannot deduct the cost of looking for a job in a different occupation or the cost of looking for your first job. So if you're a lawyer looking for a new job as a lawyer, you're good. But if you decide to go back to school to become a math teacher, you can't deduct your job search expenses.

You can deduct fees that you pay an agency for looking for a job in your present occupation
. If your employer pays you back in a later year for employment agency fees, that amount must be included in gross income in a later tax year.

You can deduct amounts you spend for preparing and mailing copies of a resume to prospective employers. This includes paying someone to design and/or type your resume; the cost of letterhead and stationery; and postage fees. It also includes fees you pay to post your resume online at a service like monster.com.

Travel and transportation expenses for job searches outside of your current residency are deductible if the trip is primarily to look for a new job, including attending an interview. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job. Travel expenses can include transportation (including airfare), meals and lodging. Keep good records to substantiate your deductions.

You can deduct phone and fax expenses, including long distance charges to potential employers. Again, keep detailed records for these charges.

So what can't you deduct?

You can't deduct personal expenses, including the costs of haircuts and interview suits -- even if you really needed them for your job search. Personal expenses are never deductible for business purposes.

If there was a substantial break between the end of your last job and the time you begin looking for a new one, you can't deduct your job search expenses. The term "substantial" is fairly subjective, so I suggest using common sense. If you took some time off after your last job to go visit your mother for a couple of weeks, it's probably not substantial. But if you decided to go find yourself while backpacking in Europe for a few months, it probably is.

For more information about job search expenses, check out IRS Publication 529.

Increase your money and finance knowledge from home

Timing Your Spending

How to pay less by changing when you purchase.

View Course »

Advice for Recent College Grads

Prepare yourself for the "real world".

View Course »

TurboTax Articles

Cities with the Lowest Tax Rates

The total amount of tax you pay reaches far beyond what you owe the federal government. Depending on where you live, most likely you're required to pay additional taxes, including property and sales tax. The disparity between the amount of tax you pay in a low-tax city and that in a high-tax city can be dramatic. Living in any of these 10 cities could save you a bundle, although the exact amount may fluctuate based on your income and lifestyle choices.

Cities with the Highest Tax Rates

Much ado is made in the press about federal tax brackets, but cities can carry a tax bite of their own. Even if you live in a state that has no income tax, your city may levy a variety of taxes that could eat away the entire benefit of living in an income tax-free state, including property taxes, sales taxes and auto taxes. Consider all the costs before you move to one of these cities, and understand that rates may change based on your family's income level.

Great Ways to Get Charitable Tax Deductions

Generally, when you give money to a charity, you can use the amount of that donation as a deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.

A Freelancer's Guide to Taxes

Freelancing certainly has its benefits, but it can result in a few complications come tax time. The Internal Revenue Service considers freelancers to be self-employed, so if you earn income as a freelancer you must file your taxes as a business owner. While you can take additional deductions if you are self-employed, you'll also face additional taxes in the form of the self-employment tax. Here are things to consider as a freelancer when filing your taxes.

Tax Deductions for Voluntary Interest Payments on Student Loans

Most taxpayers who pay interest on student loans can take a tax deduction for the expense ? and you can do this regardless of whether you itemize tax deductions on your return. The rules for claiming the deduction are the same whether the interest payments were required or voluntary.

Add a Comment

*0 / 3000 Character Maximum