How To

A General Guide to Job Hunting Tax Deductions

unemployment

Ever wondered why the IRS allows us to deduct certain job hunting expenses if we’re looking for a job in our current occupation, but not if we’re looking for a job in another one?

Or why can’t we deduct such expenses if we’ve been unemployed for a while and are now looking for a job, any job?

And why can’t newly graduated students, with education loans up the wazoo, deduct the expenses of their first job hunt? (They probably can, actually, but only in one limited circumstance.)

Why ask why? This is the IRS after all. If you qualify, deduct. Here’s how:

New Job, Same Occupation

The rules are pretty straightforward if you’re simply looking for a better paying job in your current occupation. According to IRS Publication 529, you can deduct:

  • Fees you pay employment and outplacement agencies;
  • Costs associated with sending out resumes, including resume preparation, copying, and mailing; and
  • Certain travel and transportation expenses.

That said, the first and third categories can be a little tricky.

For example, if, in a later year, your new employer reimburses you for the fees you paid an employment agency the previous year, you’ll have to include the reimbursement in your gross income—“up to the amount of your tax benefit in the earlier year.”

If, on the other hand, your employer pays the fees directly to the agency, don’t include them in your income.

With travel expenses, whether you can deduct also depends on whether the point of your trip was primarily to look for a job.

Thus, if you spend more time sight seeing along Florida’s Gold Coast than job seeking in downtown Miami, the IRS will likely deny any deduction for travel expenses to and from the Sunshine State.

Even so, if you manage to squeeze job-hunting into your vacation, you can at least deduct your job-hunting expenses while you’re in the locale.

Job hunting expenses include career counseling, 50% of your out-of-town meals, business use of your car to get from your hotel on the beach to your prospective employer’s office–at the rate of 55.5 cents per mile, long-distance phone calls, and the like.

And if the purpose of your trip really is to look for employment—again, in your current occupation—you can deduct the cost of airfare and other transportation.

Obviously, you should keep receipts, plane tickets, credit card slips, and the like to back up your deduction.

About that deduction: You can only deduct job-hunting expenses to the extent the total exceeds 2% of your adjusted gross income or AGI.

Thus, if the number on line 37 of your Form 1040 is $55,000, you can only deduct expenses in excess of $1,100.00. If your AGI is $250,000, the deduction threshold is $5,000.00.

That’s a lot of resumes. 

New Job, Different Occupation

Don’t let job titles confuse you — concentrate on your duties.

So if you’re trying to move from your job as a CPA to a job as a finance professor at your alma mater, you’re probably out of luck in the deduction department.

However, if you’re leaving your CPA job to take a position as in-house auditor, you’re probably safe.

On a related note, if you’re temporarily waiting tables while you look for a job in your regular occupation, you can still deduct the expenses of that search.

Recent Graduate Looking for a Job

Generally, recent graduates can’t deduct job-hunting expenses, but graduates who worked while they were in school are another matter.

If you were in charge of SEO for a local Internet start-up while you were in school, for instance, you should be able to deduct expenses related to finding a job doing the same thing somewhere else.

Unemployed Looking for a Job

The key word for the unemployed job seeker is “substantial,” as in, if there’s been a substantial break between the end of your last job and your search for a new one, you can’t deduct your expenses.

What’s a substantial break? Apparently, that’s for the IRS to know, and for you to find out. To be safe, start your job search as soon as possible.

A final note: Even if your job search turns futile, you can still deduct your search expenses.

Gregory Taggart is a former bank attorney who now works as a financial writer. He has written for various Bloomberg publications, Institutional Investor, Bankrate.com, among many other publications.