How to deduct Job Search Costs on Tax Return?
There are several income tax deductions that may be available with respect to job-search costs. Deducting job search expenses could very beneficial in this economy when people are changing jobs often. However, the deduction is quite narrow and often falls under enhanced IRS scrutiny. Qualifying expenses are deductible even if they don’t result in a new position being offered or accepted.
Several basic qualifications must be met for the deduction. For job-search expenses to be deductible, a taxpayer must be looking for employment in the same trade or business in which they are normally engaged. For example, a lawyer may look for a new job in a new law firm or as an in house counsel. However, the lawyer would probably not be able to deduction job hunting expenses if they were trying to become a pilot.
IRS regulations state that any job in the private sector is a new trade or business for a retired military officer. Military personnel are able to take other tax deductions are they transition into the private sector.
What are considered job hunting expenses for the tax deduction?
Expenses of seeking new employment can encompass a broad range of items.
Some of the more common expenses for which job hunting expense deductions have been allowed are:
- the cost of resumes, including postage for sending them to prospective employers
- job counselling and referral fees
- local as well as out-of-town travel for interviews, to the extent not reimbursed by the prospective employer.
- employment agency fees
- telephone charges related to seeking new employment;
- online job services
- interview coaching
- bus tickets
- airplane tickets to interviews that are not reimbursed.
Several of the main nondeductible items include a loss incurred on forfeiture of a deposit for a home in an area where a new job was anticipated. You can also not deduct a real estate broker’s commission on the sale of a home in connection with a move to a new job location. The IRS will flag these issues upon a tax audit and should not be included as a deductible job hunting expenses.
Accepting temporary employment in another line of work also will not affect your deduction for expenses in searching for permanent employment in your regular line of work. There may be limitations though on how long you have a temporary position before it might be considered your main line of work. Remember though job hunting costs aren’t deductible if you are looking for a job in a new trade or business, even if you find employment as a result of the search.
Remember to keep good records. They are classified as miscellaneous itemized deductions. You itemize them on line 21 of Schedule A of your tax return. To be deductible, the amount that you spend for job search expenses, combined with your other miscellaneous expenses, must exceed 2% of your adjusted gross income. Only the amount over the 2% threshold is deductible. Of course, if you have little or no income because you’re unemployed, the 2% threshhold will be quite small.
Exceptions to Deducting Job Search Expenses
- First time job seekers. IRS says that job hunting expenses incurred in seeking employment for the first time are not deductible. Students may be able to avoid this rule by having internships or prior work experience in the fields in which they are applying to jobs. This may show that they are seeking employment in the same field in which they are currently working.
- Reentry into job market. If an individual is temporarily unemployed, expenses of seeking employment in the field in which he or she was previously employed are deductible. If there has been a substantial gap in employment, the IRS will not allow the deduction of job hunting expenses because the person is re-entering the work force.
- Other limitations on deductibility. Deductible expenses in seeking employment are claimed as miscellaneous itemized deductions and this can dramatically affect who gets to take the deduction. As a result, individuals who take the standard deduction cannot claim such expenses. In addition, miscellaneous itemized deductions are deductible only to the extent that, in the aggregate, they exceed 2% of your adjusted gross income.
For most people, unless you job hunting costs were very large or you had many other deductions, many taxpayers will probably not be able to deduct job hunting expenses on their tax returns because of the itemized deduction limitations.