Unemployed and looking for job? Did you know that you can claim job search tax deductions in your annual individual tax returns? That’s right. Your Job Hunting Expenses can very well save you some of your precious money.
You know when the times are desperate and bleak every penny saved is a bliss. Every money coming your way gets a warm hug.
Though ever since 2011, the overall unemployment rate in US is showing a declining trend with 2017 being the year with the lowest number of people unemployed out of 100, 4.4. Lowest since the last 10 years.
However, having said that, still a little knowledge of saving money and exploiting genuine tax benefits will bring no harm.
Are Job Search Expenses Tax Deductible?
Of course, job search expenses can be tax deductible.
We all know that job hunting expenses can take their toll on you. From conveyance to ng, printing, stationery and other miscellaneous expenses that may sound trivial at first but become significant when you factor in the situation when you have no money coming in your bank account.
So the IRS does provide some benefits as job search tax deductions. However, there are few rules that you need to abide by.
Conditions To Meet To Claim Job Hunting Expenses As Tax Deductible
You need to meet the following conditions in order to claim your job search tax deductions in your annual tax return, 1040.
Look For Job In The Same Occupation
You may need to look for a job in the same occupation or when the job search is in the taxpayer’s current line of work. This may sound ambiguous at first. For e.g. If you’re working as an accountant in a company and unfortunately got laid off, you should be looking for a job aligned to your last job. So anything in the accounting or finance section will do.
However, if you decide to go towards IT, then Uncle Sam will most likely won’t support your job hunt expenses.
Having said that, since the IT has seeped in every fold of life sometimes it becomes difficult to draw a boundary between IT and Accounting and Finance. For e.g. You worked as an accountant in a company but when laid off, you found a new job within a company which implements and configures enterprise level software (Oracle or SAP etc.) within its clients and you are hired as an accounting consultant. In that case, you may have a strong case to claim tax deductions on your job hunting.
This very first rule underpins all the other rules mentioned below. So in order to claim job search tax deductions for any of the below expenses, you will have to keep in mind that the expenses do meet this very first rule. In case not, you cannot deduct the below expenses.
Secondly, it’s not necessary that you need to be laid off in order to claim job hunting expenses. You may deduct the expenses while you’re still employed but looking for job somewhere else in your present line of work.
Drafting, designing resumes and eventually mailing it to your potential employers sucks up your funds.This may include the cost of stationery as well. Sometimes you may also hire professional resume writer for the services. In that case, all the cost associated with your resume that you send out to your potential employers can be deducted as allowable expenses in your tax return.
You may be able to deduct travelling or commuting expenses while looking for job. Of course, the same rule that the job that you’re looking for should be in your present line of work.
Normally, you deduct expenses incurred while travelling to and from the area in which you’re looking for the job. In case you’re not able to identify the exact amount, you can use rather more standard rule of 53.5 cents per mile. This is the standard mileage rate for 2017. In 2016, it was 54 cents per mile.
Fees Paid to Recruiting or Placement Agencies
If you hire services of recruiting or placement agencies, you may claim the expenses paid as their fees as tax deductible.
Job Hunting Expenses are NOT Deductible for Tax Purposes When…
- The job you are looking for is not in your present line of work. Need to say this anymore?
- There is a significant gap of duration between your last job and when you start to look for job. Landing a job may take time but what matters is that when you start looking for job. IRS does not define how much “significant gap” amount to so it depends on the case of the individual. If you’re able to convince them that the delay was due to some inevitable reasons, they may show some leniency. It all depends how you present your case.
- You are looking for your first job
- The expenses incurred are reimbursable by the employer. In that case, you need to include that reimbursed amount as your gross income up to the amount of tax benefit that you previously availed. However, if the employer pays directly to the recruitment agencies and you aren’t responsible for them then you may not need to include that reimbursed amount back.
Where on the Tax Return You Enter Your Job Search Tax Deductions?
You can file your job hunting expenses for tax deductions on the Schedule A of your individual tax return as Miscellaneous Itemized Deductions. Specifically speaking, this tax return is also call 1040.
However, one thing to keep in mind is that the itemized deductions is a collection of many other deductions that you can claim tax benefits for. Instead of “Normal” Itemized Deductions, Job Search Expenses are “Miscellaneous” Itemized Deductions. Hence, the total of these itemized deductions should exceed more than two percent (2%) of your adjusted gross income.
I hope this is not confusing. In case it is then here’s an example.
Suppose your Adjusted Gross Income (AGI) is $1,000. 2% of $1,000 is $20. Now, your total Job Hunting Expenses are say, $100. You can only claim tax benefits on the $80 ($100 – ($1,000 x 2%)) of your expenses since the “Miscellaneous” Itemized Deductions should exceed the 2% haircut rule.
This 2% rule applies only on the “Miscellaneous” Itemized Deductions.
Needless to say that if the job hunting expenses are less than 2% of your AGI, you cannot claim tax benefits on them.
I hope that clears up the situation.