Being unemployed isn’t fun. Even dealing with tax audit defense might be more fun than being out of a job. But the economy is a lot better than it was a few years ago, and finding a new job is a stronger possibility than it has been. Better yet, while you’re looking for your next opportunity, you have a few tax advantages to help you through—in particular, you can deduct some of your job-hunting expenses. Here are the tax deduction rules for job seekers.
First of all, to deduct expenses you need to be looking for a job in your current industry. If you’re trying for a new job doing the same kind of work you were doing before, or for the same kind of company, you’re fine. A full career change is not tax-deductible. You also can’t deduct expenses if it’s your first time looking for a job (i.e., you’re right out of college). These tax deductions are designed for people who have lost a job, not people who haven’t found one yet. And the IRS wants people to get back to work sooner rather than later, so you can’t deduct expenses if you waited a long time between the end of your last job and the beginning of your current job search.
Now the big question here is: what expenses can I deduct? There are a few different categories of expenses that are deductible in this case:
- Preparing, printing and sending resumes to jobs in your current field.
- Communication costs (phone calls, etc.) for job interviews and search activities.
- Travel expenses for job interviews, site visits, etc. Note that trips like these are typically examined to make sure they were primarily job-search-related, so just because you interviewed in Orlando doesn’t mean you get to write off a week at Disney World.
- Moving costs to move to a new area for a job, unless your new employer covers or reimburses them for you.
- Fees for employment or job placement agencies. If your employer later pays you back for these, that payment becomes taxable income.
- Career coaching, professional conferences and networking events, provided you keep detailed records about how investing in these gets you closer to a new job.
There’s one other catch to this. All these expenses are tax-deductible if and only if they exceed 2% of your adjusted gross income. Now, if you’re unemployed, your income is obviously very low, but since AGI is calculated annually, any income you made this year from the job you recently lost counts toward these calculations. So make sure you subtract 2% of that AGI from whatever job search expenses you’d like to deduct before taking the deductions themselves.
Hopefully you won’t have to deduct job search expenses more than one year in a row, because you’ll have a new job soon! But it can be comforting to know that even if your job search lasts a long time, these deductions are there to help.