With the United States unemployment rate hovering between 8 and 9% for the last two years, many people have been on the hunt for a new job. If you keep track of your job hunting expenses, you may be able to take the job hunting tax deduction at tax time. Here’s what you need to know about the job hunting costs tax deduction:
Basic Requirements for Job Hunting Expenses
The first requirement for taking a tax deduction for job hunting expenses is that you’re seeking a job in the same line of work that you had previously; or that you are working in currently. If you are currently working but seeking a new job in the same line of work, you can deduct eligible job hunting expenses that exceed 2% of your income.
You can deduct the cost of having a resume created or copied, career counseling expenses, and phone calls related to the job search. The following are examples of eligible expenses under the job hunting tax deduction, and are described in detail in IRS Publication 529:
- Employment Agencies: if you pay an agency to help you find a new job in your current line of work, you can deduct the expense. Keep in mind if your newly found employer reimburses you for the cost of the agency fees, you need to include that money as gross income up to the amount of the tax benefit you received when claiming the deduction.
- Transportation and Traveling: if you take a trip to look for a new job, you can deduct the travel expenses to get there and back. If you are taking a vacation but end up looking for work in your present career while away, you can deduct the job search expenses even if you can’t deduct the travel related expenses.
- Resume Services: if you pay a company to prepare your resume, you can deduct that expense. If you pay for copies and postage to mail to potential new employers, you can deduct those expenses as well.
- Phone Calls: if you are calling potential employers to ask about work, or calling for phone interviews, you can deduct local and long distance phone fees.
Expenses for Seeking Self-Employment
If you are trying to start your own business in your current line of work, expenses related with research or client acquisition could be tax deductible as job hunting expenses or they can likely be deducted as general business expenses.
Expenses You Cannot Deduct
While there are many job hunting expenses you can deduct to reduce your tax liability, there are also job hunting costs that are not eligible for a tax deduction. The following expenses cannot be deducted:
- Job hunting costs if looking for a new occupation in a new line of work
- Job hunting costs if you’re looking for your first job
- Job hunting costs if there is a substantial break between the end of your last job and when you began looking for your next job
How to Claim the Job Hunting Expenses
You need to itemize your expenses at tax time in order to deduct your job hunting expenses. You will keep careful track of all of your eligible job hunting expenses, and then include them on your IRS Form 1040, Schedule A on line 21 for miscellaneous itemized deductions.
Be sure to keep excellent records of your expenses because you will not be able to get any benefit on these until April of 2013.