The numbers come with many variables, but the Bureau of Labor Statistics estimates that as of February 2013, 12 million people were without jobs. Many of them are actively looking to replace the jobs they lost. Ironically, looking for a job can be expensive.
The time and effort required for a job search can easily equate to the work of a full-time job. On top of that, there are the costs involved with travel, placement services, resume writing and other expenses that add up fast. When there is little or no money coming in, those expenses seem crushing.
Fortunately, the IRS wants to help (yes, you read that correctly). You can deduct a portion of your job search expenses on your taxes. Of course, the IRS isn’t going to blindly sign off on anything you submit, so it is more accurate to say that you can deduct a portion of your “qualified” expenses. Here’s the rundown on what you can deduct and how to do it.
Where to Look
As with most things, when you want the truth, you need to head to the source. In this case, you need to visit the IRS website and look up Publication 529. Job search deductions are miscellaneous deductions in the eyes of the IRS, which means you will want to go to page five of the 2012 publication.
First, your job search has to be in the same field as your previous job. If you used to be a plumber but went back to school and are now looking for a job as a paramedic, none of your job search expenses are deductible. Still want to be a plumber? Then all of your qualified expenses are deductible.
If you’re just out of college or looking for your first career, the expenses aren’t deductible.
What if you lost your job and took some time off to travel, raise children or get an education? The IRS will not allow you to deduct job search expenses if “there was a substantial break between the end of your last job and the search for a new one.” The IRS does not define “substantial” but if you didn’t start looking for a job within a short period after leaving your last place of employment, your expenses might be disallowed.
If you’re not looking for a job full time but would take a position if it were offered, continue sending out applications so you can claim deductions when you do put a large-scale effort into your search.
What is deductible?
Provided you meet the above criteria, your qualified expenses are deductible. So what is “qualified”?
- Resume Services - If you paid somebody to polish up your resume, that’s deductible. Higher quality paper, mailing costs or any other expense related to your resume are likely deductible.
- Employment Agencies - Are you paying an employment agency to help you find a job? How about an online job search site that charges a membership fee? Both are deductible. If your past employer paid for the service or you’re later reimbursed for those expenses, you’re required to claim it as income, provided you wrote it off on a previous return.
- Travel Expenses - Traveling all over your community, state or country for job interviews? Write it off, but be careful. If you set up an interview that happens to be close to one of the beautiful Florida beaches, you can only write off the expenses if the primary reason for the trip was for the job search. If the majority of your trip involved spending time with a certain mouse at a certain theme park, you’re probably out of luck.
What isn’t deductible?
Just about everything else. You can’t deduct the value of your time or the new suit you purchased for the interview. You might be able to deduct the cost of training or education but that would fall under education deductions found in IRS Publication 970.
The 2% Rule
Here’s where you find out why the job search deduction probably isn’t that substantial for most people. First, since it’s a deduction, only a portion of the total expenses equal to your tax bracket are subtracted from your income. Next, only expenses that exceed 2% of your adjusted gross income qualify. So let’s assume that you made $35,000 in 2012 and had job search expenses of $800. The first $700 isn’t deductible because of the 2% rule. The final $100 is subject to your 15% tax bracket, so your deduction is a not-so-impressive $15 (still better than nothing, of course).
Naturally, some people will find a much larger benefit from this deduction, so it’s worth the time to keep track of all expenses. The main point is, when you’re spending money to help land a job, don’t rent a limo and a tuxedo for an interview with the expectation that you’ll be largely reimbursed when you file your taxes.
The Bottom Line
Remember the first rule when dealing with the IRS: If you can’t document it, it didn’t happen. If you plan to deduct job expenses, then detailed, meticulous documentation is necessary. If you’re deducting travel, have a log. Resume expenses? Make sure you get receipts. Job-search website fees? Again, get that receipt. It’s likely that the IRS isn’t going to accept your credit card statement as proof. Regardless of how small the expense, while you’re searching for a job, plan for the year-end tax deductions as the expenses add up.
TaxesGenerosity may be its own reward, but some charitable giving also provides personal tax benefits.
TaxesBe sure to read the fine print about any deduction or credit that you’re planning to claim.
TaxesMany of these tax-minimization strategies can be used by anyone. Find out how you can pay taxes like a millionaire.
TaxesFrom sales tax deductions to credit reports, check out what items should be on your financial checklist.
TaxesThese mistakes could lead you to pay more taxes or even get into trouble with Uncle Sam.
TaxesSix reasons why many taxpayers can save money and time by claiming the standard deduction.
TaxesThese are some of the most common tax write-offs that you can't really claim.
TaxesThe receipts you cram into your wallet could be replaced with cash come tax season.
RetirementAs a U.S. nonresident, deciding what to do with your 401(k) after you return home comes down to which tax penalties, if any, you're willing to incur.
TaxesLearn the proper procedure for deducting stock investing losses, and get some tips on how to strategically take losses to lower your income tax bill.
The Cayman Islands is one of the most well-known tax havens in the world. Unlike most countries, the Cayman Islands does ... Read Full Answer >>
The Republic of Panama is considered one of the most well-established pure tax havens in the Caribbean due to extensive legislation ... Read Full Answer >>
If you decide your current annuity is not for you, there is nothing stopping you from transferring your investment to a new ... Read Full Answer >>
Typically, qualified benefits offered through cafeteria plans are exempt from Social Security taxes. However, certain types ... Read Full Answer >>
Andorra is one of many locations around the globe considered a tax haven because of its relatively lenient tax laws. However, ... Read Full Answer >>
If the owner of a variable annuity dies before receiving full payment, his beneficiary must pay taxes on any earnings received. ... Read Full Answer >>