Summer is the time of year that many people change jobs, and if you itemize deductions on Schedule A of your tax return, you will be able to deduct a lot of related search expenses if certain conditions apply.
As with any other tax deduction, there are rules that must be followed in order to guarantee the write off.
First of all, the job search must be in the same field as your current line of work. So if you are a software engineer who has just completed a course at the culinary academy and are now on the hunt for a chef gig, you will not be allowed to write off your job-search expenses.
Also you cannot write off job search expenses if you are looking for a job for the first time.
Another caveat is that there cannot have been a long break between the end of your last job and the time you began looking for a new one. With recent economic conditions, you may have experienced a long break between jobs. Your expenses will qualify if you were looking for work the entire time. So keep a calendar of interviews, ad clippings, and other data to back up your intent in this regard in the event you are audited.
According to the IRS, you may deduct the following expenses:
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- Résumé Costs. You can deduct the cost of preparing and mailing your résumé.
- Travel Expenses. If you travel to look for a new job, you may be able to deduct the cost of the trip. To be eligible, the trip must be mainly to look for a new job. You may still be able to deduct some costs if looking for a job is not the main purpose of the trip. For example, you take a one-week vacation to Hawaii. While there, you take a cab to drop off a resume to a prospective employer. You later take the employer to lunch to discuss the job. You may deduct the cab ride and 50% of the lunch, but you will not be entitled to take the cost of airfare or lodging or other expenses while you are there. The IRS will consider the main purpose of the trip to be personal and therefore not deductible.
- Placement Agency. You can deduct some job placement agency fees you pay to look for a job.
There may be other costs associated with the job hunt that the IRS will allow. As long as you can prove the expenses were ordinary and necessary to the job search and there was no significant personal element, the agency will likely allow the deduction.
Bear in mind that you will not be allowed a deduction for any expenses that are reimbursed.
You may claim job search expenses on Schedule A, Itemized Deductions as a Miscellaneous Deduction subject to a reduction of 2% of your Adjusted Gross Income (AGI).
In your tax file for the current year, keep a log of all interviews, contacts, copies of correspondence to and from prospective employers as well as receipts for all expenses incurred.
According to the IRS, “If you receive advance payment of the premium tax credit in 2014 it is important that you report changes in circumstances, such as changes in your income or family size, to your Health Insurance Marketplace. Advance payments of the premium tax credit provide financial assistance to help you pay for the insurance you buy through the Health Insurance Marketplace. Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.”
If your new job requires relocating, you may be able to deduct moving expenses. To find out if you qualify for the deduction take the IRS Moving Expense Interview.
For more on job hunting refer to Publication 529, Miscellaneous Deductions on IRS.gov. You can also call 800-TAX-FORM (800-829-3676) to get it by mail.
Bonnie Lee is an enrolled agent admitted to practice and representing taxpayers in all 50 states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, Calif., and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know.” Her new e-book Taxpertise for the Creative Mind Murder, Mayem, Romance, Comedy and Tax Tips for Artists of all Kinds is available at all major booksellers. Follow Bonnie Lee on Twitter and on Facebook.