Tax Breaks for Job Hunters

Last Updated Sep 27, 2011 5:12 PM EDT

Are you or someone you know hunting for a new job? Then you know that job searching can take a financial toll. These days a job search can last six months or more and include a number of expenses. But there is some help in the form of tax breaks for job hunters.

You can deduct job search expenses you incurr while hunting for a new job as long as it's for a job in your present line of work (i.e., you're not changing professions). Generally there are two limitations that apply here: 1). you can't deduct job search expenses if you are looking for a job in a new occupation, there was a substantial break between the ending of your last job and the beginning of your new one, or you are looking for you first job, and 2). These expenses, when combined with other miscellaneous expenses must first exceed 2 percent of your adjusted gross income before any are deductible.

There is some room to be creative here.

A CPA who was employed by a national accounting firm was entitled to deduct the expenses he incurred while investigating whether or not he could practice his profession as a self-employed individual.

A corporate executive could deduct his expenses incurred while seeking a position as an executive with another company.

An unemployed electrician was allowed to deduct the cost of travelling to a union hall to seek job opportunities within the trade union.

One way around the 2% income limit is to set up a sole-proprietorship business reported on Schedule C of the tax return. Here taxpayers may fully deduct many "ordinary and necessary" costs of doing business. When you do this, deductions for home-office, business-card, travel or resume-preparation expenses that otherwise would be limited are fully deductible....as long as the costs are necessary to generate the income you'll claim on Schedule C. And there isn't a requirement to stick with your former occupation.

Here are some examples of the expenses you could deduct while searching for a new job:

1.Resume preparation (drafting, typing, printing, mailing, faxing)

2.Employment agency and recruiters' fees

3.Portfolio preparation costs

4.Career counseling to assist you in improving your position

5.Legal and accounting fees you pay in connection with employment contract negotiations and preparation

6.Advertising

7.Transportation costs to job interviews

8.Long distance and cell phone calls to prospective employers

9.Newspapers and publications you purchase to read the employment ads

10.Half the cost of your meals you pay for that are directly related to your job search

11. Your expenses for travel and lodging, if you take a trip away from home to look for a new job and that is the primary purpose of the trip. Sorry, going to Cancun to read the employment adds in the Chicago Tribune isn't allowed!

What to File

Use IRS Form 2106 to report and total your job search expenses. Meals and entertainment expenses related to a job search are reduced by 50 percent while all others are unreduced. Report the total of the allowable expenses on Line 20 of your Schedule A - Itemized Deductions. These expenses, when combined with other miscellaneous expenses must first exceed 2 percent of your adjusted gross income before any are deductible. This is more likely given that a job search could be associated with a loss of income for a period of time; therefore the 2 percent threshold could be lower in the year that the expenses were incurred. See IRS publication 529 for details.

Records to Keep

In case the IRS selects your return for audit and challenges your deductions for job search expenses, you should keep the following to support your claims for deducting job search expenses:
  • Evidence of your current occupation at the time the job search expenses were incurred.
  • Evidence of your search for employment such as a letter from a prospective employer or an employment search agency contract.
  • All receipts credit card slips and cancelled checks that evidence your payment of the expenses incurred.
  • Detailed records of dates of travel and mileage logs for expenses for which payment was not made.
Hey, if you're going to pay the costs, getting a tax break to pick up some of the tab is a good thing.
  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.

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