Job hunting isn’t most people’s idea of a pleasant experience, but there may be some redemption at tax time. There are certain job hunting expenses that are tax-deductible, and may give you a break on your income tax at the end of the year.
Below are typical job hunting expenses that are tax-deductible. There are limitations on these deductions, that we’ll get to near the end of the post.
Basic Job Hunting Expenses
The IRS allows you to deduct job hunting expenses if you itemize your deductions on Form 1040, Schedule A. It is important to understand that your job hunting expenses will be deductible whether or not you actually get a job as a result of your efforts. Some of more basic expenses you can deduct include:
Printing and Postage
Though most people today apply for jobs online, either through job boards or directly through employer websites, going the old-school route of using direct mail is often more effective, if only because the traffic there is now so much lighter. If you do mail out your resume, you can deduct the cost of the printing of the resumes, as well as the postage costs required to mail them. You can also deduct the cost of the paper and the envelopes used in the preparation of your mailers.
Professional Resume Preparation
Many job hunters will pay professionals to prepare the resume. If you do, you can deduct this expense as well.
This is not as rich of a deduction as it once was, because so many phone services offer unlimited long distance. But if you ever do have to make a paid call, such as a call that you pay for with a credit card, you can deduct it as part of your job hunting expenses, as long as it is directly related to the job search.
Job Hunting Related Travel
You can deduct the cost of travel to meet with potential out-of-town employers. The list of potential deductions include:
- Travel expenses, such as air fare
- Mileage driven (55.5 cents per mile for 2012)
- Hotel/lodging costs
- Connecting transportation (buses, cabs, etc)
Obviously, job hunting related travel can easily be the largest part of your job hunting deduction. This will be especially true if you make several trips in the attempt to find a job.
Any time you deduct travel expenses for job hunting purposes, the trip must have been primarily for the purpose of finding a job. So if you went out of town for a week long vacation, or to visit family or friends in another city, and just happened to have a job interview or two while you were there, the trip will not be deductible.
Job Placement Fees
Most typically, job placement fees – such as those paid to recruiting firms – are paid by the prospective employer, and not the employee. But if there is ever a situation where you have to pay the fee or any part of it (this actually happened to me, very early in my life), then the expense will be tax-deductible.
One note of caution here, if the employer later reimburses you for the placement fee – perhaps because you cleared a probationary period – that reimbursement will need to be reported as taxable income, if you had taken the deduction in the previous year.
Relocation to take a new job is deductible as a moving expense. This can include the actual cost of your move (such as the cost of employing a moving company), as well as your transportation to the new location.
In order to deduct moving expenses on your tax return you must meet three tests:
Your Move is Closely Related to the Start of Work
According to the IRS, this condition is met when “incurred within 1 year from the date you first reported to work at the new location.”
If you are an employee, you must work full time for at least 39 weeks during the first 12 months after moving to the new location. The requirement for self-employed persons is 78 weeks.
This test is met if the new location is at least 50 miles farther from your former home than your old main job location was from your former home. For example, if you lived 10 miles from your old job, you will have to move at least 60 miles from your current home in order for the cost of the move to be deductible.
See IRS Publication 521 for a more in depth description of what relocation expenses are allowed.
IRS Limit on Job Search Expense Deductions
In order to deduct job hunting expenses, you must itemize and those costs must exceed 2% of your Adjusted Gross Income (AGI). For example, if your AGI is $50,000, only the portion of your job hunting expenses that exceeds $1,000 (2% of $50,000) will be deductible. Exception: Moving expenses are not subject to the 2% reduction, and can be deducted on Page 1, Line 26, of Form 1040, making it fully deductible.
In addition, according to the IRS:
You cannot deduct these expenses if:
- You are looking for a job in a new occupation,
- There was a substantial break between the ending of your last job and your looking for a new one, or
- You are looking for a job for the first time
Translation: It has to be a replacement job, and not either a first job or a transition to a new career.
What tax deductions can you take? Leave a comment!