A less-taxing job search: when to deduct common job search expenses
The old adage “You have to spend money to make money,” may be true in many cases, but job search expenses by their nature can come at a time of financial stress. On this Labor Day holiday, the time is meant to give a pre-fall break to who labor countless hours a week. But for those looking for work, the day could be a somber reminder of their current state.
The good news is that taxpayers may be able to get a tax break for some of their job search expenses when they file their federal income tax return. The bad news is that not all job-seeking taxpayers can deduct their job hunting expenses, and not all job search expenses qualify for tax deductions.
The good, the bad and the ugly of the job-search expense deduction
Before they go too far down the rabbit hole, taxpayers should know if they even qualify for job search tax deductions. A few types of job seekers do not qualify to deduct their expenses at all:
1. First-time job seekers
Anybody searching for their very first job cannot deduct any expenses related to their search. So no go for recent college graduates. This tax benefit won’t help them find their first break.
2. Job seekers starting a new career
Taxpayers looking for a job in a new field cannot deduct their job search expenses. Only taxpayers who are looking for a new job in their current (or recent, if unemployed) occupation can deduct their qualifying job search expenses.
3. Job seekers who have taken a “substantial break” from the workforce
Taxpayers who have taken a prolonged break from work are back to square one when they decide to rejoin the workforce.
However, the IRS defines the break as the time between the end of their last job and the start of their job search, not the start of their next job. So taxpayers who embark on a lengthy search for a new job would not necessarily face this disqualification.
“It’s ok to take a break from working, but if you plan to return eventually, it’s a good idea to start your job search within a reasonable amount of time since your last job, and carefully document your job search efforts” said Jackie Perlman, principal tax research analyst at The Tax Institute at H&R Block.
Even if they qualify to put their job hunting expenses on their tax returns, job seekers can only benefit from it if they itemize their deductions on Schedule A of the 1040. Additionally, their job search and other miscellaneous deductible expenses must exceed two percent of their adjusted gross income. Only the expenses that are over that threshold are deductible.
“It may sound like a large threshold, but more than 12 million taxpayers were able to claim their miscellaneous deduction in 2014,” said Perlman. “The important thing is to track your expenses throughout the year. You never know when an unexpected expense at the end of the year might bump you over that threshold.”
Taxpayers are likely to itemize their deductions if they have expenses like charitable giving, mortgage interest, real and personal property tax, unreimbursed employee business expenses and other common itemized deductions in their completed tax return.
Yea or nay: qualifying job search expenses
As a general rule of thumb, any expenses a taxpayer deducts should be “ordinary and necessary,” a phrase that shows up more than 2,300 times on irs.gov. According to Perlman, qualifying job hunting expenses are:
- resume development and distribution costs,
- unreimbursed travel expenses and
- professional placement service fees.
Fees for online job boards and social networks like LinkedIn might seem deductible as an expense to develop and distribute a resume, but the IRS does not allow for the deduction of those expenses. However, costs to print and mail resumes are allowed.
Taxpayers who buy new clothing for a job search cannot deduct those expenses. Clothing is typically a personal expense, even if used professionally.
In some cases, expenses ineligible as job search tax deductions may qualify for a different tax benefit. For example, one way to stay competitive in the job market is to take advantage of continuing education and training opportunities. While a taxpayer cannot deduct those costs as a job search expense, there are other education tax credits. For example, eligible adults in the first four years of college may claim the American Opportunity Credit of up to $2,500. Or, those seeking to improve job skills or get an advanced degree may claim the Lifetime Learning Credit up to $2,000. Eligible taxpayers can also deduct $4,000 in tuition and fees.
Another expense ineligible for the job search expense deduction is the cost of child care. However, parents who work or are seeking work and pay care expenses for children under 13 may be eligible for the Child Care Tax Credit. They may claim a credit of up to $1,050 for one child and $2,100 for two or more children.
“And if you end up moving to take a new job, you may be eligible to deduct the cost of moving to the new location,” said Perlman.
It may be that you have to spend money to make money, but thanks to the tax code, that isn’t the whole picture. You have to spend money to make money – and then to get a tax break.