Overlooked deductions: job search expenses
by Feb 1st 2010 2:45PM
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.