3 requirements to deduct job search costs

The good employment news: More people got jobs last month. In fact, in April the U.S. economy added jobs at the fastest pace in four years.

The bad employment news: Since more people were looking for jobs last month, the overall unemployment rate inched up a bit to 9.9 percent. Economists had expected it to hold at March's 9.7 percent level.

Those numbers from the Bureau of Labor Statistics underscore the value of my Careers Over Coffee group that gets together each month to offer advice and encouragement to each other. It's an offshoot of the Austin chapter of Association for Women in Communications, and there actually are two coffee klatsches, one for folks in the southern part of town and the other for those of us who call north Austin and the suburbs that direction home.

At today's gathering, which really is more breakfast than just coffee and in fact often tends to run into brunch and some days even nudges lunchtime, the issue of deducting job search expenses came up.

I can't tell you how thrilled I am that my regular attendance at this event has some of my colleagues thinking about taxes more than they usually would.

Of course, others probably wish I didn't show up so they could be spared even a minimum of tax talk, but tough! I like the company, the wide-ranging discussions and the hubby likes the blueberry muffin I always bring back for him, so I and my tax perspective are there! But I digress.

Today, my friend Rosemary mentioned to a new attendee who's looking to return to the workforce that job hunting costs are tax deductible. Then Rosemary graciously turned the tax lecture pontification elaboration over to me.

I thought that by now everyone knew about this tax break, but then not everyone is a total tax geek. So as a refresher for those who do know and as new info for those who don't, here are three key things to note about writing off job search expenses.

1. Itemization required: Job search expenses are deductible as long as you itemize.

These costs are counted as part of "Job Expenses and Certain Miscellaneous Deductions" on Schedule A.

Most people, however, claim the standard deduction.

For 2010 returns, the standard amounts are $5,700 for single filers; $8,400 for heads of households; and $11,400 for married couples filing jointly.

If all your itemized expenses don't come to more than the standard amount for your filing status, then this tax break won't work for you.

2. Threshold must be met: If you do itemize, then track those job search costs. But remember that there is a dollar limit on the deduction.

You can count the miscellaneous section of your itemized costs only to the extent that its total exceeds 2 percent of your adjusted gross income (AGI).

That means if 2 percent of your AGI is $500 and you have miscellaneous expenses of $501 or more, then you have a deduction.

But even then, only the amount over your threshold, not the total amount you've accumulated, is deductible. So per the example, miscellaneous (including job search costs) expenses of $520 mean a deduction of just $20.

The threshold tends to mean that that folks who have jobs but are simply looking for new ones don't have enough overall miscellaneous expenses to claim the deduction.

However, if you've been out of work for a while and don't have much income, then you might be able to clear this AGI hurdle.

3. Type of job restrictions: Finally, there's one more requirement you must meet before you can deduct your job search costs. You must be looking for a job
in the same field as the one you have
or most recently held.

 Career fair in Marietta, Ga., courtesy City of Marietta via Flickr

Sorry, the IRS won't help subsidize your career change.

And for you folks who are unemployed, don't wait too long to start searching for another job or the IRS might disallow your deduction.

The tax agency specifically warns that you cannot deduct job search expenses if there was a "substantial break" between the end of your last job and the time you begin looking for a new one.

What you can deduct: If, however, you do meet the three basic requirements, then there is a variety of job-search related expenses you can count. They include:

• Employment and outplacement agency fees. 
  
• Resume services. 
  
• Printing and mailing costs of those resumes and accompanying cover letters. 
  
• Job-wanted ad placement fees. 
  
• Telephone calls. 
  
• Travel expenses, both local and out-of-town, in connection with job-hunting efforts.
  

Other expenses, such as books to help you learn about composing more effective job hunt techniques, also might count.

Essentially, if you can legitimately argue that an expense was related to and helped in your job search, count it. Just be able to defend the expense if asked.

And as the case with everything tax, have substantiation (receipts, letters from prospective employers regarding interviews, etc.) for your claims.

Good luck in finding that new job!

Related
posts:

• Jobs, no jobs and taxes
• Unemployment's terrible tax surprise
• Tax concerns of the unemployed
• The no-jobs tax problem
• Writing off job-related moving costs
• Need a job? Try the IRS

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