Looking for a job takes money as well as time. Fortunately, you may be able to deduct some of your job search expenses on your federal income tax return. Unfortunately, this deduction is only available if you itemized your tax deductions, something most taxpayers do not do.
Here are seven things you should know about deducting costs of your job search:
- First and foremost, you need to understand that you can only deduct expenses you incur on a job search in your current occupation. You may not deduct expenses you incur while looking for a job in a new occupation. For example, a plumber could deduct expenses looking for a new job as a plumber, but not to make a career change to work as a wedding planner.
- You can deduct all the ordinary, reasonable, and necessary expenses you incur while job hunting, including the cost of preparing and mailing resumes, creating and maintaining websites, business cards, and other expenses.
- You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your new employer pays you back in a later year for employment agency fees, you must include the amount you received in your gross income, up to the amount of your tax benefit in the earlier year. If your employer pays the fees directly to the employment agency and you are not responsible for them, you do not include them in your gross income.
- You can deduct travel expenses to look for a new job in your current occupation if the trip is primarily to find work, not to sightsee or otherwise enjoy a vacation. If you qualify, you can deduct transportation, lodging, and 50% of meal expenses and entertainment expenses. You can use your actual expenses or the standard mileage rate to figure your car expenses. The 2014 rate for business use of a vehicle is 56 cents per mile. However, even if you cannot deduct the travel expenses to and from an area, you can deduct the expenses of looking for a new job in your present occupation while in the area.
- You cannot deduct your job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.
- You cannot deduct job search expenses if you are looking for a job for the first time.
- Job search expenses are claimed as a miscellaneous itemized deduction. To be deductible, the amount that you spend for job search expenses, combined with your other miscellaneous expenses, must exceed 2% of your adjusted gross income. Only the amount over the 2% threshold is deductible. Of course, if you have little or no income because you're unemployed, the 2% threshhold will be quite small.