Written by Marc R Barnes EA
June 01, 2012
With continued turmoil in the job market, the number of people searching for work continues to be at a high level. Because of this, the amount of time it takes to find a new job can be long and expensive. Don't overlook the ability to deduct qualified job hunting expenses on your tax return. Here is what you need to know.

Background

If you are searching for a new job in your present line of work, you may take qualified job search expenses as a miscellaneous itemized deduction on Schedule A of your tax return. When combined with other miscellaneous expenses you may deduct any amounts over 2% of your Adjusted Gross Income. Think you may not have sufficient expenses? Think again, especially since your income may be temporarily lower as you transition into a new position. To qualify you must pass three hurdles;
  • The new position must be in the same line of work. There is leeway here, but if you decide plumbing is not for you and you wish to become a doctor, the expenses do not qualify.
  • There can be no substantial gap in time. If you are out of the workforce for a long period of time AND have not been looking for a job, you run the risk of having the expenses disallowed. So keep up activity to defend your deduction.
  • Sorry recent graduates, this deduction is not for you. It only qualifies for obtaining a new job in your present line of work.

Qualifying Expenses

The following expenses are usually deductible even if you don't end up with the job:
  • Costs to prepare your resume, letters, and other correspondence. This includes the cost of printing stationery and paying for someone to help you organize your resume.
  • Fees to employment agencies, recruiters, and consultants
  • Advertisements in newspapers and trade magazines
  • Transportation to interviews including out-of-town lodging
  • Meals while out-of-town related to the job hunt (subject to 50% deductibility)
  • Telephone expenses. This includes job hunting related cell phone use.
  • Other related expenses. This can be things like printer cartridge ink for printing your correspondence or parking fees.

If the expense can be directly related to your job hunt, document it.

Documentation

Keep track of all your job related expenses to substantiate your deductions. Here are some hints:
  1. Keep a log of your activities. A small note book or calendar can be a handy tool to log your activities.
  2. Keep receipts and canceled checks. You'll need to document the deductibility of your expenses.
  3. Keep copies of job ads. This will help you defend the search is in your present line of work.
  4. Keep potential employer letters. This will show that your expenses are legitimate.

Don't forget to keep track of other miscellaneous expenses to help cross your 2% threshold. Once the threshold is met, each incremental dollar could result in a reduction in your taxes. Other common miscellaneous deductions include; union dues, continuing education related expenses, uniforms, special work clothing, expenses for the production of income, tax preparation fees, and hobby expenses.

Topic: Credits and Deductions