Ask the taxgirl: Politicians and Job Hunting Expenses

Taxpayer asks:

Can successful or failed contenders deduct their expenses from the federal taxes as a job hunting related expense? Got to wonder what Whitman was thinking spending all that money except, I can deduct these ‘loans” one way or the other not as a political contribution (rather limited) but a job hunting expense. Curious as to your take.

taxgirl says:

This is a genius question. Seriously.

I’ll answer the easy bit first: it’s clearly not a job hunting expense for those newbies hoping to make politics their profession. You can’t take a tax deduction for job hunting expenses when you’re switching careers – so whether you are going from airplane pilot to sous chef or lawyer to politician, you can’t take the deduction. This would bar, say, Delaware’s Christine O’Donnell from claiming those expenses since it’s my understanding that she’s never actually served in office (feel free to correct me if I am wrong on that one).

But what about someone like New York’s Andrew Cuomo, who is switching political positions? Is that the same? Cuomo is changing jobs from Attorney General to Governor. There could be an argument that it’s a different career but I think they’re likely closely associated enough to be considered the same “occupation” for purposes of the deduction. And actually, that particular jump is not terribly unusual (see also California’s Jerry Brown and Pennsylvania’s Tom Corbett).

That said, assuming that the candidates cleared that first hurdle (is it the same career?), the question becomes would those “job hunting” expenses be otherwise deductible and if so, which ones? It helps to understand the deduction to figure that part out. So here goes:

The job search expense deduction is technically considered an “unreimbursed employee expense” and is claimed on Schedule A. That means that you can only take the deduction if you itemize.

Job search expenses are further considered a “miscellaneous itemized deduction.” That’s significant because you don’t get to take a full deduction for the expenses: you can only claim the amount of expenses that is more than 2% of your adjusted gross income (AGI). That means that you take your AGI (found on line 38 of your federal form 1040) and figure your deduction by subtracting 2% of that number from the total amount of your expenses. Here’s a quick example:

AGI on line 38: $100,000

Job search expenses: $6,000

Allowable deduction: $4,000 (2% of $100,000 is $2,000, so you can claim the overage ($4,000) of your expenses exceeding that 2%)

The same standard applies to job search expenses as applies to other “unreimbursed employee expenses.” That means that the expenses must be:

  1. Paid or incurred during your tax year;
  2. Use in your trade or business; and
  3. Ordinary and necessary.

The first bit is pretty straightforward: to be a deduction for federal individual income tax reasons, the expense would have to be paid by the taxpayer. As in out of their own bank account. Not from a PAC, not from an election fund or other committee.

The next bit is also fairly straightforward: the expense must have been used in the taxpayer’s trade or business. Personal expenses don’t count: that includes items like wardrobe for interviews as well as the ubiquitous teeth whitening and self tanning for politicians (hey, you and I have to look good at our jobs, too) and food while not on the road. The expenses must be for business.

Finally, the expenses must be “ordinary” and “necessary.” As I’ve explained before, an ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business.

So after you go through all of that analysis, you might decide that these campaign expenses are deductible. It meets the criteria so far, right? Except for one teensy little problem: it’s specifically excluded under the rules (as are political contributions). You can check out IRS Pub. 529 for a list of other exclusions.

IRS Pub. 17 is even more specific:

You cannot deduct campaign expenses of a candidate for any office, even if the candidate is running for reelection to the office. These include qualification and registration fees for primary elections.

You can also read more at the Tax Code at section 162(e) where a deduction is denied for “(B) participation in, or intervention in, any political campaign on behalf of (or in opposition to) any candidate for public office.”

I realize that’s a long way of saying no, those expenses are not deductible. But I wanted to go through the entire drill for two reasons:

  1. I thought the explanation of the deductibility of job search expenses might be helpful for my readers who might be looking for work; and
  2. It’s important to understand that just because something *seems* to fit the definition of a deductible expense doesn’t mean that the analysis is over. Always check the exceptions. The Tax Code is full of ‘em.

Does that make sense? Even more interesting, is it a fair result?

Like any good lawyer, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl! – On twitter at http://www.twitter.com/taxgirl and on Facebook at http://www.facebook.com/taxgirl

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Comments

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  2. AK

    Fascinating stuff. Kudos to whoever asked that question, it’s one I never even considered.

    “It’s important to understand that just because something *seems* to fit the definition of a deductible expense doesn’t mean that the analysis is over. Always check the exceptions. The Tax Code is full of ‘em.” And this is why it’s important to have tax professionals if you need them people! For the rest, there’s Kelly.

  3. JobPad

    Interesting facts mentioned here. You really have to know where your money goes. Whether you’re out looking for a job or working hard to keep one, make sure you get help with organizing your stuff. This should make things easier for you.

  4. Thomas F Scanlon, CPA, CFP®

    Kelly,

    Good question and a great answer.

    The other consideration is that having a large amount of miscellaneous itemized deductions may trigger the Alternative Minimum Tax (“AMT”).

    Regards,

    Thomas F. Scanlon, CPA, CFP®

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