Looking for a job in a tough economy is tough and can be expensive. Did you know that it can also be tax deductible? If you are looking for a new job in your same field of work the cost of looking may be tax deductible on your federal income tax return. This is especially important if you are out of work when you consider that things like severance and unemployment payments are taxable.
The IRS has strict rules that apply to this deduction and the first and most important is that you must be looking for work in your current occupation. That means if you are a surgical nurse and you look for a job as an Emergency Room Nurse you are still in nursing. But if you are a nurse and you are looking for work as a chef that is not the same occupation and therefore the expenses are not deductible.
Record keeping matters. Not everyone is detail oriented or used to keeping track of what they did and what they spend. That will not satisfy the IRS if they question your return. We're not talking about setting up a full blown accounting system but we talking about keeping and labeling receipts and maybe a spreadsheet to tie it all together. A spreadsheet will also make totaling up your deduction a lot easier than searching through receipts and scraps of paper.
The most important item in almost any job search is a great resume. A great resume is your first impression with a potential employer and not a place you want to cut corners. Fortunately the expenses related to your resume are deductible (same occupation rule applies). So if it's been a while since you updated yours now is the time to do so.
Resume related expenses can include drafting, typing, printing, mailing and faxing. These costs are deductible whether you are doing it yourself of paying a service to help you. You can not deduct for your time in preparing your resume but the hard costs like paper and printing can be deducted. The same rules apply to portfolios for those in the arts, drafting or architecture.
Head hunters, employment agencies and outplacement services vary in whether they charge you or the prospective employer for referring you. In the cases where you as the applicant pay all or part of the fees for service you can deduct that amount from your income. It is important to remember that if your new employer reimburses you for all or part of those fees down the road you will have to declare that as income and adjust your gross income accordingly.
Travel and transportation expenses related to your job search include things like airfare to distant cities for interviews and bus and train fares downtown knock on doors or deliver resumes in person. Gas and tolls out to the suburbs for career counseling meetings are all considered deductible by the IRS provided they meet the first requirement of being for your current occupation.
When it comes to traveling for a job search, you can take your husband or wife along for the trip and spend extra time relaxing but you can not include your companion's expenses in your deduction even if they are there to lend moral support. The same is true for expenses related to the personal unrelated time spent traveling. Remember that accurate detailed record keeping in situations like this will save a lot of headaches later.
You may not deduct your job search expenses if you had a substantial break between the end of your last job and when you began looking for a new one. The IRS does not define a substantial break but a good rule of thumb is continuity. If you start looking for a new job right after you loose your old one then there is no room for question no matter how long it takes to find a new position.
Taking advantage of this deduction requires that you complete a Schedule A with your tax return and your job search related expenses combined with other expenses must meet IRS guidelines such as job search expenses may not exceed two percent of your adjusted gross income.
For more information and you can refer to IRS Publication 529, Miscellaneous Deductions which is available online at IRS.gov. As always if you are uncertain about how to proceed consult a CPA.