Deducting Job Hunting Expenses

A deduction is an expense you may subtract from your income that lowers your final taxable income. Deductions include mortgage interest, property taxes, charitable contributions, many retirement account contributions and, of course, qualified job hunting expenses.

Not everyone on a job hunt, however qualifies for these deductions. First of all, you must be looking for a job in the same field in which you were previously employed. So if you are an engineer, you must be looking for a job as an engineer. You can't be looking for a job as a travel agent or an elephant trainer. That ruling, of course, eliminates the tax break if this is your first job search.

Second, you won't get a deduction if your search begins after taking "a substantial break," perhaps to board a freighter for a cruise around the world. Your search must be within a reasonable amount of time after you lost or left your previous job. You may want to consult your tax preparer about the definition of "reasonable" if you've been lolly gagging about for a while.

At tax time, open your folder and itemize your expenses on IRS Schedule A. Attach it to your 1040.

CAUTION: You can subtract your job hunting expenses from your income only if they add up to more than 2% of your adjusted gross income (AGI). For example, if your AGI is $50,000 and you have $1,500 in appropriate expenses, only $500 is deductible. That's $1,500 minus $1,000 (2% of $50,000).

Adjusted gross income is arrived at by adding up all your income for the year to get your gross income and then subtracting adjustments. Adjustments include: contributions to your qualified retirement accounts, alimony payments, qualified moving expenses, student loan interest, medical savings account deductions and, if you're self-employed, half the self-employment tax. Once all your adjustments have been subtracted, you have your AGI.

Tax Deductible Job Hunting Expenses

• Employment agency fees
• Career counseling fees
• Local and long distance phone calls
• Outplacement services
• Printing & mailing of search letters
• Printing & mailing your resume
• Resume preparation help
• Start-up business costs
• Telephone calls
• Travel expenses to/from job interviews, including out-of-town
• Want ads in newspapers & journals
• Moving expenses to a new job at least 50 miles away

Note: If you are going to an out-of-town interview, your train or plane tickets, hotels, meals, taxis and miscellaneous expenses are deductible. But don't try to turn your trip into a vacation and deduct the full amount. This is something the IRS watches very, very closely.

A final word: Your search does not need to be successful in order to be deductible!

For Further Information

• You'll find all the details in IRS Publication #529, "Miscellaneous Deductions." Download it at: http://www.irs.gov/.
• And, if you decide at this point to start your own business, keep in mind that certain startup expenses are deductible. These are spelled out in IRS Publication #535, "Business Expenses," also at: http://www.irs.gov/.