Insider Information: Good News! Job Search Expenses Are Deductible in the U.S.

By Harry Collias, H&R Block Tax Specialist

Expenses incurred in the course of searching for a new job can be a deduction against your taxable income.

The Internal Revenue Service has laid down some rules and erected at least one hurdle, but the deduction can make a difference in your final tax bill.

Many job seekers are unaware of this tax benefit; here's how you can take advantage of it.

First, the Rules:

You can deduct certain unreimbursed expenses you incur in looking for a new job, whether or not you are unemployed at the time of the job search, and whether or not you land a new job.

You cannot deduct job search expenses if:

You are looking for a job in a new occupation, or
There has been a substantial break between the ending of your last job and your looking for a new one, or
You are looking for a job for the first time.
If you pass the "cannot" rules, then you can deduct

Employment and outplacement agency fees.
Costs of typing, printing, and mailing copies of your resume.
Phone and fax expenses, including long distance calls to prospects.
Travel and transportation expenses if you have to travel outside your home territory to look for, or interview for, a job. The trip must be primarily to look for a job. The term "primarily" refers to the amount of personal activity on the trip compared to the amount of time you spend in looking for work. Even if you cannot justify deduction of travel expenses you can still deduct the expenses of looking for a job while in the area. If you drive you can deduct the standard mileage rate of 36 cents per mile.

Second, the hurdle:

Job search expenses are classified as "miscellaneous itemized deductions." This class of deductions (which include union dues, work clothes, and tax prep fees) is only deductible from your income if you itemize deductions and only to the extent that the total exceeds two percent of your adjusted gross income.

Third, some advice:

Keep detailed records of your expenses, in case of audit, and never include expenses for which you have been reimbursed by your prospective employer.

© Copyright 2004 Harry Collias. All rights reserved.

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Harry Collias is a tax specialist at H&R Block. His five-year second career at Block has followed a 25-year stint in management at Digital Equipment Corporation.