You already know that networking can help you find a new job. But you might not know that the IRS offers an assist, too. If you were looking for a new job in 2014, most of your job search expenses are tax deductible. Job search expenses can be deducted as miscellaneous itemized deductions.
You don’t have to be out of work to have some of your costs qualify as a deductible expense, but only expenses that exceed 2% percent of your adjusted gross income for the year count. The truth is the 2% of AGI threshold is a lot easier to clear when your income is low because you’ve been out of work. If you have been unemployed during the last year, you’ll need to report your unemployment compensation as income. Also, severance pay, 401K and/or other pension distributions and bonuses may be taxable. Work done as an independent contractor must also be included in your income.
When you’re searching for a job it’s important to keep track of your job search expenses. You must be looking for a job in the same line of work you are currently in to qualify for a tax deduction.
For example: If your last job was working as an accountant in a CPA firm, getting a corporate accounting job would be considered staying in the same occupation. But getting a Marketing position in another CPA firm would not, and job hunting expenses would be nondeductible.
What you can deduct:
- Employment and outplacement agency fees.
- Resume preparation costs such as typing, printing and mailing copies of your resume to prospective employers.
- Travel expenses for your job search if the trip is primarily to look for a new job. (This does not mean visiting your sister in another state.)
- Local and long distance phone calls to prospective employers.
You cannot deduct these expenses if:
- You’re looking for a job in a new field.
- There was a substantial break between the ending of your last job and you’re looking for a new one.
- You are looking for a job for the first time.
Whether job hunting or moving to that new job, keep detailed records of your expenses as you incur them so you have records, in case of audit, and never include expenses for which you have been reimbursed by a new or prospective employer.
Also forget about claiming that the cost of haircuts, makeovers, gym memberships and new clothes are somehow related to your job search. The IRS won’t buy in even if you believe it’s the truth.
For more information regarding tax deductions, see: IRS Publication 529 or consult a tax professional. For questions related to your job search or resume, I’d love to hear from you.