Tax Time: Happy Returns from the Job Search
Dig out those job-search receipts: If you shelled out for resume preparation, employment agency fees or interview-related travel in 2009, you might see some of that money come back to you.
Her husband is an aeronautical engineer. They moved from Texas to Connecticut, where he found work with a defense contractor. She, however, worked in what has become one of the hardest hit sectors in the recession: financial services.
Obviously, finding a job in her new state wouldn’t be easy. Neither, apparently, was doing her taxes, since she didn’t have a firm grasp of what job-search expenses she could deduct. And the woman in question was passing up easy opportunities for deductions, said Theodore D. Lanzaro Jr., a certified public accountant and managing partner of Lanzaro CPA, in Connecticut, who helped the woman prepare her tax return.
“She had had a lot of obvious stuff, like driving to an interview, phone calls, prepping her resume, but she didn’t have [deductions for talking] to a career counselor. She paid somebody $250 for career counseling. That’s deductible, but she didn’t know that. She didn’t know she could deduct newspapers and magazines she bought to look for jobs.”
The more they talked about how she was going about finding a job, Lanzaro said, the more deductions they found she could take. Lanzaro and his associates discovered several thousand dollars in Internal Revenue Service deductions the woman would have willingly paid, had she never asked.
She’s not alone, said Lanzaro and tax experts who spoke to Ladders. The line between a deductible item and a taxable purchase is not clear. The money you spent to have your resume rewritten is tax deductible, but the money spent on a new business suit is probably not.
To help clarify the issue, Ladders asked accountants and tax preparation experts to evaluate the tax liability of some of the most common job-search expenses. In all cases, job seekers should consult a tax professional for authoritative advice on their individual cases, but the advice that follows can help you determine some of the best guidelines to follow when considering purchases that could be tax deductible.
Who is eligible?
Many job seekers aren’t even aware they qualify to deduct job-search expenses on their taxes. They assume deductions are reserved for the unemployed. Not so, said Bob Meighan, CPA and vice president at TurboTax. The IRS allows anyone, employed or not, to deduct some of the cost of finding a job from his final tax bill. The limits apply to what kind of job you’re looking for and your individual expenses.
In short, your job search must be in the same line of work in which you are currently or were most recently employed, he said. It should also be at a similar level of responsibility with duties similar to those of your most recent job. If you haven’t held a job in that trade or business for an extended length of time, your job search will be considered for a new trade or business, and your deductions may not be allowed.
Recent college graduates should bear in mind these qualifications: If you held a college internship or valid job while in college and your search is for a job in the same trade or business, you will be able to deduct job search expenses. Otherwise, it is a new trade under IRS rules.
What’s OK to deduct?
Some of the most common tax deductions associated with a job search include:
1. Employment agency/career coaching fees. If you paid for a career coach or used an employment agency, most of the charges are tax deductible. If your employer paid for such services, you may actually have a tax liability. ( See the attached worksheet.)
2. Resume preparation. This includes using a professional resume writer, paper, printing and postage.
3. Round-trip travel to job interviews. That includes airfare, meals (at 50 percent) and lodging (actual expenses only). For your 2009 return, you can deduct 55 cents per mile for driving to and from interviews. In 2010, this deduction will drop to 50 cents per mile. Be warned: If you combine a vacation with a trip to conduct an interview, you could get into trouble with the IRS.
4. Advertising for a job, such as in the “job wanted” column of your local newspaper.
5. Newspapers and periodicals purchased to search through employment ads.
6. Phone charges incurred when setting up interviews.
7. Education credits for tuition, related fees and books are generally tax deductible. There are two education tax credits of which you should be aware: the American Opportunity Credit and the Lifetime Learning Credit.
The American Opportunity Credit gives credit up to $2,500 per student for postsecondary education. It breaks down to 100 percent of the first $2,000 of expenses, and then 25 percent of the next $2,000, said Melissa Labant, a tax expert with the American Institute of Certified Public Accountants. In order to claim the entire $2,500 credit, you’d spend a total of $4,000 in education expenses. This credit is more generous than others in that it not only covers tuition, but covers books and related fees as well.
Note that married couples filing jointly can get 100 percent of the American Opportunity Credit if their combined income is $160,000 or less, making it widely available to middle-class taxpayers, Labant said.
Graduate-level classes typically fall under the Lifetime Learning Credit, she said. This credit covers individuals paying qualified tuition and related expenses at a postsecondary, eligible educational institution. The IRS’ site points out that “unlike the Hope Scholarship Credit, students are not required to be enrolled at least half-time in one of the first two years of postsecondary education.”