This article is part of a package on tax deductions you can take if you're between jobs and consulting or freelancing while you're looking for work. To find out what you can and can't deduct if you're freelancing or a consultant, see our story on tax deductions for freelancers.
As if being out of work and competing with everyone and their grandmother for work weren't bad enough, a growing number of Americans are discovering yet another unpleasant truth about job hunting: It can be expensive. It costs money to travel to interviews, to get help with resumes, and to look good for those potential new bosses you're trying to impress. Fortunately the IRS allows you to take tax deductions for at least some of those expenses if you itemize on your return. Job-hunting expenses are grouped in the "miscellaneous deductions" of your tax return, a category which must exceed 2 percent of your adjusted gross income to qualify for the write off. Here are some of the key job-hunting expenses you can and cannot deduct.
Home Office Equipment
- Cannot deduct: The full cost of equipment such as computers, printers, and fax machines
- Can deduct: A portion of the cost of equipment
Since most office equipment can be used for many purposes, you’ll only be able to deduct the percentage of the cost that corresponds to how much of the device you use exclusively for your job search. And even then, you’ll only be able to deduct a portion of the initial cost, since the IRS considers equipment like computers and printers to have a lifetime of five years. In many cases, the deduction will be quite small so you might be better off just going to Kinko’s and doing your job-related computing and printing there, since those costs will be fully deductible.
- Cannot deduct: Classes and materials if you’re training for a new career
- Can deduct: Classes and materials associated with your present career
The IRS generally has strict limits on the deductibility of educational expenses. If you were laid off as a chef and you are going back to school to become an investment counselor, you cannot write those classes off. However, if you were laid off as a chef and you take a cooking class, or you were laid off as an investment counselor and you take a business course, it’s considered career development and is deductible.
Coaches and Assistants
- Cannot deduct: The fees for career coaches, resume specialists, Web site designers, etc., if you are trying to break into a new field
- Can deduct: The fees for the above if you are applying for a job in the same field as your previous job
As with classes and education, if you’re using the services of a coach or specialist to assist your job hunting in the same field, it’s considered deductible career development. Note that the fees for any help related to your appearance — such as hair stylists, tailors, personal trainers, and dieticians are never deductible — since they don’t exclusively benefit your business or ability to do work. Knowing this should help you answer the question posed in this popular H&R Block commercial that aired during the Olympics:
- Cannot deduct: Your flight and hotel stay in Los Angeles to check out the Santa Monica Pier and decide if you’d like to live there
- Can deduct: Your flight and hotel stay in Los Angeles if you have an interview scheduled or are going to E3 to network
“The IRS wants to see a real reason for your trip; how do they know you didn’t just go there on vacation?” says Tina Salandra, CPA and owner of Numerical LLC, an accounting firm in New York City. Note: Trying to write off the cost of bringing your spouse along isn’t going to fly in either case.
- Cannot deduct: A $100 bottle of Bordeaux to thank Mortimer for getting you a job interview
- Can deduct: A $25 case of Budweiser to thank Joe for getting you an interview
- Tax Tips for Freelancers: What You Can and Can’t Deduct
- Top 10 Job Interview Mistakes
- How to Ace Job Interview Questions
- Tax Tip: Deduct Your Hobby Expenses
- 10 Tax Deductions to Take Now
The IRS caps business gift deductions at $25.
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