With the unemployment rate at an all-time high (9.5% in June 2009), many job seekers are dipping into their own pockets to facilitate their career searches. If you are searching for a job this summer, you may be able to deduct some of your expenses on your tax return. These deductions are only available on the Schedule A (you must itemize to realize the benefits of these deductions) and are subject to the 2% rule (you can claim the amount of expenses that is more than 2% of your adjusted gross income).
Here are the top six things the IRS wants you to know about deducting costs related to your job search.
In order to deduct job search costs, the expenses must be spent on a job search in your current occupation. You may not deduct expenses incurred while looking for a job in a new occupation.
You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation - you can also deduct subscriptions to employment services such as The Ladders
You can deduct amounts you spend for preparing and mailing copies of a résumé to prospective employers as long as you are looking for a new job in your present occupation - this may also include video resumes, web pages or additional mediums produced specifically for your job search.
If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.
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 - the IRS does not define substantial so consult your tax preparer if you have questions regarding the "substantial break" criteria.
You cannot deduct job search expenses if you are looking for a job for the first time - sorry college grads!
Also, don't forget about the temporary suspension of taxation on a portion of your unemployment benefits! For 2009, out-of-work Americans may exclude up to $2,400 of unemployment benefits when reporting the income for federal income tax purposes. Benefits exceeding that amount will still be subject to tax. Every little bit helps, right?
For more information about job search expenses, see IRS Publication 529, Miscellaneous Deductions or contact your local Liberty Tax office to speak with a tax preparer.