Article by Steve Moskowitz, J.D., LLM., Senior Partner and co-author Anthony Dsiodi, J.D., LLM., Senior Associate
Date Published Jan 2009 San Francisco Business Times
In these difficult economic times countless Americans have been forced to look for a new job. Many of our readers will be surprised to learn that their job-hunting expenses may be deductible for income tax purposes. However there are two limitations our readers should be aware of before claiming a deduction for job-hunting expenses on their tax returns. First, the expense must be associated in looking for a new job in your present line of work. But, the deduction may be allowable even if you do not find a new job. However, the associated expense of looking for a new job in a new trade or business, even if a job is found, is not deductible. For example, if an attorney sought a position as an elementary school teacher, his associated job expenses would not be deductible. On the other hand, if an attorney decided to seek a position in a law firm, his job-hunting expenses may be deductible.
The IRS has permitted deductions for the following job related expenses: 1) fees paid to employment agencies; 2) cost of mailing resumes; 3) legal fees related to reviewing an employment contract; 4) transportation costs to job interviews; 5) fifty percent of meals and entertainment expenses directly related to job search; and 6) out of town travel expenses including meals, lodging, and transportation, if the trip is primarily to look for a new job.
If you claim a job-hunting expense, you should be prepared to substantiate your expenses in the event of an IRS audit. As such, you should keep all of the receipts, which demonstrates you’re out of pocket expenses. In addition, you should keep a log or diary detailing your interviews, expenses, and entertainment costs. When claiming deductions on a tax return, there is no such thing as having too many logs and documentation. Keep in mind, if the IRS audits your tax return and questions your job hunting expenses, your receipts and logs will be the only things they review to support your deduction.
Second, our readers will need to understanding that job hunting expenses are classified as a so-called “below the line” deduction. This means that that job expenses are classified as an itemized deduction. An itemized deduction is limited to the extent that it exceeds more than two percent of a taxpayer’s adjusted gross income. In other words, job-hunting expenses will only be likely deductible only to the extent it totals more than two percent of your adjusted gross income. In addition, there are numerous other limitations, such as the Alternative Minimum Tax, which may reduce or entirely eliminate the deduction. Consequently, it is important that you consult with your tax professional before claiming a deduction for your job-hunting expenses.
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