Tax tips for deducting job search

job change expenses

By Lisette Hilton

Job searching might land you more than a lucrative job. Many of the expenses associated with finding a new job are tax deductible if you know the rules.

While it doesn't cost job seekers a penny to post on MedZilla.com, there are lots of other expenses associated with finding a job that do cost money. Everything from resume expenses (hiring a consultant to write one) or taking classes to become better at what you do is a possible deductible expense, says Frank Heasley, PhD, president and CEO of MedZilla.com, a leading Internet recruitment and professional community that targets jobseekers and HR professionals in biotechnology, pharmaceuticals, healthcare and science.

Whether you're going to get some last minute deductions for 2002 or are thinking about looking for a new job in 2003, you should keep track of job-hunting expenses, according to Reginald J. Bowser, president and CEO of RolloverSystems, a provider of technology-based 401(k) rollover products and services.

Job search costs can be deductible whether you're employed at the time of searching or not, according to Neil Becourtney, CPA, tax partner with JH Cohn LLP, Roseland, NJ.

Becourtney says that job search expenses fall under the heading of miscellaneous itemized deductions, which also includes tax preparation fees, employee business expenditures that are not reimbursed, education that furthers your profession, investment fees (such as safe deposit box rental), work uniforms (including scrubs), etc.
Has to be in excess of 2% of your gross income
The key, when it comes to these deductions is they are only deductible to the extent that they exceed 2% of your gross income. So, Becourtney explains, if your adjusted gross income on page one of your 1040 is $100,000, 2% of that income is $2,000. If that miscellaneous itemized deduction pool of expenses exceeds $2000, you're entitled to deduct the excess, and only the excess.

Other limitations
Keep in mind that these expenses are only deductible if you're seeking a job in your present occupation-not looking for a new career. Other things that prohibit deductions are if there was a substantial break between the time you ended your last job and began looking for a new one, or if you're looking for a job for the first time (right out of college, for example), according to Becourtney.

The IRS hasn't defined that substantial period of time losing a job and looking for a new one, but court cases have used the term hiatus for periods of up to 2.5 months, he says.

What you can deduct
You can deduct expenses related to your finding a new job, such as printing resumes, purchasing a newspaper subscription to keep up with the want ads, employment agency fees and all travel and transportation expenses to interviews that are not reimbursed.

Going to school to better yourself in your field? Deduct those expenses. However, make sure they meet two requirements, according to Becourtney. First, the education cannot prepare you for a new career; rather, it maintains or improves skills necessary in your field, Becourtney says. And [the education cannot be to meet] the minimum educational requirements in your field. You cannot deduct your undergraduate tuition, [for example].

Graduate degrees or extra courses in your profession qualify, but getting a nursing degree to become a nurse does not.

Bowser suggests checking into the Hope Scholarship Credit and the Lifetime Learning Credit, which offer tax creditsÖ of $1,500 and $1,000, respectively for tuition and other education-related expenses, he says.

Once you land a new job, some moving expenses are deductible, as long as the move is 50 miles away or more. If it is, you can deduct the actual transportation expenses for moving you and your family and the cost of moving your belongings. The IRS did away with being able to deduct for house hunting, the pre-move and temporary living, Becourtney says.

Be strategic
If you're at the end of one tax year and will not meet the 2% rule for itemized deductions, try to bundle and delay your expenses into the next year, Becourtney says.
Be 401(k) savvy Bowser says, Don't cash out your 401(k). Cashing out a $10,000 401(k) can cost up to $4,000 in taxes and early withdrawal penalties.

He suggests that you act fast to avoid taxes. For example, if you took a cash distribution from your former employer's 401(k) plan within the past 60 days, you can still avoid the tax hit by rolling over to an Individual Retirement Account (IRA). If your 60-day window is about to expire, you can roll over your 401(k) online.
Even those job seekers who are not reimbursed for their expenses find that their efforts to better themselves and find new jobs may not be quite as expensive as they thought-thanks to Uncle Sam, Dr. Heasley says.


Lisette Hilton is a professional writer, specializing in medical and business writing to the trade and consumer.