You can deduct many of your job-hunting expenses. That's not that surprising, since it's in the Internal Revenue Service's best interest to have you earning taxable income.
Uncle Sam's tax help, however, does have its limits.
You must itemize deductions on Schedule A to count your job-hunting expenses.
That task is further limited by a threshold amount you must meet. Your job search costs are considered miscellaneous expenses. As such, they are deductible when they, and all other allowable expenses in this category, are more than 2 percent of your adjusted gross income.
That means, for example, if your adjusted gross income, or AGI, is $30,000, you must have miscellaneous expenses that add up to more than $600. So, if you have $650 in allowable expenses, you can deduct only $50.
The good news is that there are many miscellaneous expenses you can include on this section of Schedule A. In fact, some expenses you incurred at the job you are leaving but for which you weren't reimbursed can be added in to help get you over the 2 percent threshold hurdle.
Don't Look Too Far Afield
The other big obstacle in writing off your job search costs is the type of work you're seeking.
You can deduct expenses only if you're looking for another job in the same occupation. If you're an engineer and want to go from Smith Construction to Jones Construction, the IRS will help pay costs incurred to make that office switch.
But if you want to leave Smith Construction and start a new career with Watson's Catering, don't expect any help from Uncle Sam.
The IRS also won't allow your deductions if you took a substantial break between your last job and your search for a new one. Basically, the IRS won't help subsidize your job hunt if, for example, you took a year off to travel or care for your kids.
And sorry, new graduates. You can't deduct job search expenses if you're knocking on doors trying to get your first full-time paying gig. Of course, if that first job is not the one of your dreams, start looking again within your profession, and this time take advantage of the tax breaks.
The one bit of good news among all these restrictions is that as long as you haven't taken a sizeable work break and are looking for employment within your current profession, you can write off eligible search costs even if you don't get a new job.
Now to the important question: What can you write off?
Just about anything counts as a job search expense, starting with your resume. You can deduct amounts you spend for preparing the document, including fees for professional help in tweaking it to catch an employer's eye. Once it's ready to go, be sure to note the delivery costs; they're deductible, too.
If you get help beyond shaping your resume or curriculum vitae, that's also deductible. This includes employment and outplacement agency fees that help you look for a new job in your present field. Be careful here, however. If your new employer later pays you back for those employment agency fees, you might need to include at least some of that repayment money in your gross income. Essentially, the IRS doesn't want you to get a free deduction based on money that you then, in tax terms, recovered.
Also keep track of the cost of advertising your services, newspapers and other periodicals you purchased to monitor their help-wanted ads and legal fees paid to an attorney to review an employment contract.
Some travel expenses incurred in your employment search also can be deducted. This includes some food expenses, as well as lodging and, in some instances, transportation to and from another city to look for a job.
Keep in mind that the trip must primarily be to look for a new job. You can't go visit your cousin in Kansas City, drop off a resume at ABC Corporation, and then deduct your transportation costs. Some personal time, however, is allowed. Just make sure that the amount of time you spend on personal activity is substantially less than the time you spend looking for work.
No matter what you eventually choose to deduct, it will all be disallowed unless you can show receipts (not just a monthly credit card statement) for your expenses, including a mileage log for the car with start/finish odometer readings, date, and purpose of the trip.
Even if you cannot deduct the travel expenses to and from an area, you can deduct the expenses of looking for a new job while in the area. This could be, for example, the cost of a rental car or cab fare to go from the hotel (or your cousin's house) to meet with ABC Corporation's personnel department.
If you use your own car to make job search trips, either out of town or within your current city, keep track of the odometer readings. You can use the standard mileage rate to figure your car expenses. This per-mile rate varies each year, and sometimes within a year, depending on, in large part, current gasoline prices. Check www.IRS.gov for the latest rates.
Have you decided to strike out on your own? The costs of looking into that enterprise also can count as long as your self-employment effort is in the same field as your last job.
Remember, when you become your own boss, the same documentation guidelines apply to those deductions, too.