Deducting Job Search Expenses

Q: I’ve been applying for new jobs while working for my current employer. Someone told me that my job search expenses were tax deductible. Is that true? How do I claim those expenses as tax deductions, and how much can I deduct?

A: It’s true. Job search expenses ARE tax deductible. As the IRS puts it, “You can deduct certain expenses you have in looking for a new job in your present occupation, even if you do not get a new job.” Of course, there’s lots of qualifications and limits, so you have to be careful.

First, your job search expenses will have to be significant, because only those that exceed 2% of your adjusted gross income (AGI) are deductible. Your AGI is on line 38 of your 1040 form. At $200 per $10,000 of AGI, someone with an AGI of $50,000 would have to have more than $1,000 in job search expenses to be able to deduct the first dollar.

Second, if you do have deductible job search expenses, you’ll have to itemize. That only makes sense if all your itemized deductions exceed the standard deduction. For the 2006 tax year, the standard deduction for an individual is $5,150, and double that, $10,300, for a married couple. For a head of household, it’s $7,550.

So, you’ll probably need other deductions, besides a deduction for job search expenses, for all your miscellaneous deductions on Schedule A to exceed youView Postr standard deduction.

If you get over those two hurdles, your expenses must be incurred while looking for the same type of job. The IRS is picky about this, and won’t let you deduct expenses for changing careers, or for even seemingly minor job changes. For instance, they’ve denied the deduction for government workers looking for private sector jobs, and for military personnel looking for civilian jobs. And they denied it to Nelson Rockefeller, saying he couldn’t deduct the money he spent on getting confirmed as Vice-President, because being Vice-President wasn’t similar to his old job as Governor of New York.

You also can’t deduct job search expenses if there was “a substantial break” between your old and new job, and if you’re looking for a job for the first time. It’s not clear what a substantial break is, but someone who took time off to raise kids should be careful.

And although new graduates generally can’t deduct their job search expenses, one source suggested they can if they’ve recently done a summer internship in the same type of employment.

Examples of deductible expenses are resume printing and postage, phone calls and faxes, running want ads, buying papers for the want ads, career counselors, employment agencies, legal fees to review employment contracts, and unreimbursed travel expenses—if the primary purpose of the trip is to look for a job. If your travel combines job search and pleasure, be careful.

Finally, if you want your job search expenses to be tax deductible, keep good records and receipts.