J is for Job Search Expenses.
Despite recent news that seems to hint that the job market might be recovering, many Americans are still out of work. The prospects, however, of finding a job seem a little brighter as the U.S. continues to add jobs. If you’re one of those still searching, take heart. And keep receipts: the costs of looking for a new job are tax deductible.
If you itemize, you can deduct out of pocket expenses related to your job hunt even if you don’t get a new job. That means that you can deduct:
- Paper, preparation expenses and printing for your resume
- Stamps to send out your resume (yes, people still do use stamps)
- Online expenses to post your resume (on monster.com, for example)
- Fees paid to employment agencies
- [entity display=”Travel” type=”section” active=”true” key=”/travel”]Travel[/entity] to and from interviews
- Long distance calls to prospective employers
- Costs of getting a portfolio, look book or other work samples together
Not all out of pocket expenses are deductible. Those considered strictly personal in nature don’t count, even if you swear that you couldn’t get a job without them. Costs that you can’t deduct include:
- Interview suits (even if you don’t have one)
- New shoes (even if they’re adorable)
- New haircut
- Time off looking for a new job
There are a few more caveats:
You can’t deduct the cost of looking for your first job. Fair or not, recent college grads are out of luck on this one.
Similarly, you cannot deduct the cost of looking for a job in a new profession. If you’ve decided that this lawyer gig isn’t working out for you and you strike out instead to pursue your dream job as a fashion designer, that’s terrific, but you can’t deduct the cost of chasing down [entity display=”Vera Wang” type=”person” active=”true” key=”vera-wang”]Vera Wang[/entity] or Michael Kors. Job search expenses are only deductible if they’re within the same field or profession.
You also can’t deduct job expenses if there has been a “substantial break” between leaving your last job and starting to look for new job. The IRS does not define “substantial break” in so many words: there isn’t a magic formula to figure this out. So, I suggest you use a little common sense. Taking a few months to travel around the world in between jobs is likely a substantial break (lucky you!) just as taking a few years off to have children would qualify as a substantial break (though clearly not as much fun as traveling around the world, it’s more work, more expensive and it feels longer). If you’ve found yourself watching every episode of A&E’s Intervention onDemand or have managed to get through reruns of every cycle of America’s Next Top Model during daytime television, that may also qualify as a substantial break. It’s a little bit relative – but pretty much, you should be able to figure out what feels reasonable.
Qualifying expenses are deductible as miscellaneous expenses, which you would claim on line 21 on your Schedule A:
You can deduct the total of miscellaneous expenses that exceed 2% of your adjusted gross income (AGI). Here’s a quick example: Say you have $1,000 in job search expenses and other miscellaneous deductions and your AGI is $40,000. You can deduct $200, or the difference in your expenses ($1,000) over 2% of your AGI ($40,000 x .02 = $800).
Here’s more on job search expenses:
For more in the series, see:
Taxes from A to Z: A is for Alimony
Taxes from A to Z: B is for Barter
Taxes from A to Z: C is for Capital Losses
Taxes from A to Z: D is for Deductible Taxes
Taxes from A to Z: E is for Educator’s Expenses
Taxes from A to Z: F is for FSA
Taxes from A to Z: G is for Gift Expenses
Taxes from A to Z: H is for Home Improvements
Taxes from A to Z: I is for Injured Spouse