Deductibility of Job Search Expenses

In this economy, many individuals are looking for jobs, and they may incur some expenses along the way. This letter briefly explains when job hunting expenses can be deducted on your tax return.

Only Expenses to Look for Job in Same Occupation Can Be Deducted

While it may seem unfair, you can only deduct expenses to search for a job that’s in the same occupation as the last one you had (or the one you still have if you’re looking for a better position). If you pass this “same occupation test,” you can potentially deduct the expenses (subject to limitations explained below). You can also deduct expenses to look for a new job in the same occupation even if you’re temporarily working in another field. And you can deduct expenses to look for full-time work in your existing occupation while you’re working part-time or sporadically in the same line of work.

For a new high school or college graduate seeking first-time employment, job search expenses are generally not deductible because a graduate is considered to be seeking a new occupation (first-time employment) by definition.

Allowable Expenses and Deduction Limitations

Some examples of deductible job hunting expenses include employment agency or headhunter fees, travel costs, resume preparation, copying, postage, and long-distance calls (but only if you have to pay extra for them). If you drive in connection with your search, you can deduct the IRS business mileage allowance. But keep this in mind: transportation expenses to go out of town are only deductible if the primary reason for your trip is the job search. You can’t deduct expenses that are reimbursed by a prospective employer or a future or past employer.

Here’s the big catch: you must classify the amount of your allowable job search expenses as a miscellaneous itemized deduction item. Therefore, you receive no tax-saving benefit at all unless you itemize. If you do itemize, miscellaneous itemized deduction write-offs are only allowed to the extent they add up to more than 2% of your Adjusted Gross Income (AGI) when combined with certain other miscellaneous deduction items. No deduction is allowed under the alternative minimum tax (AMT) rules.