TAX BENEFITS FOR JOB SEEKERS

This information was provided by RIA and IRS in the IRS Summertime Tax Tip 2009-01.

Due to recent economic changes and the sad occurrence of our clients losing jobs or being otherwise displaced, I have had more and more inquiries about the deductibility of job search expenses.  My standard answer is that “it depends.” Here are the top six things IRS wants you to know about deducting the cost of your job search.

In order to deduct job search costs, the expenses must be spent on a job search in your current occupation.  You may not deduct expenses incurred while looking for a job in a completely new occupation.  This is a little known fact.

You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.

You can deduct amounts you spend for preparing and mailing copies of a resume to prospective employers as long as you are looking for a new job in your present occupation.

If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area.  You can only deduct the travel expenses if the trip is primarily to look for a new job.  The amount of time you spend on personal activity is important in determining whether the trip is primarily personal or is primarily to look for a new job.  We advise clients to keep a travel log or calendar documenting places visited and reasons, as well as receipts that document those expenses.

You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.

You cannot deduct job search expenses if you are looking for a job for the first time.

It goes without saying that documentation is the key to deducting these expenses, as is the case with any tax deduction. And of course, the big kicker – you cannot deduct job search expenses if you do not itemize deductions on Schedule A.  All job search expenses are deductible as Miscellaneous Itemized Deductions and subject to a 2% of AGI threshold.  This oftentimes makes it difficult for clients to deduct any of them.  However, in years where income is down due to a job loss, the job search expenses could become partially deductible.