It is no secret that the current job market still remains difficult for many professions. Recent jobs reports show that the economy is adding jobs, but not at a level job applicants want to see. Some California residents may have found their way back into the labor market, but are searching for a better or more permanent position.
While the job search can be long and stressful, there is a silver lining: Depending on each person's circumstances, some costs associated with that search can be counted as income tax deductions. As with nearly everything in the tax field, however, determining eligibility for this deduction involves consideration of a number of fairly complex criteria. Improperly claiming the deduction could lead to a controversy with the Internal Revenue Service if the agency selects a person's return for a tax audit.
The IRS has offered a tax tip to provide rudimentary guidance on the subject. In order to claim a deduction for expenses related to a job search, taxpayers must:
• Look for a job within their current profession. This is a vitally important criterion. Expenses incurred in searching for employment in a different occupation are not deductible. What about first time job seekers? Unfortunately, those who are looking for their first job do not have an established profession and cannot claim the deduction.
• Not have had too long an interval separating their prior job and their current job hunt. A large gap will render a person ineligible for the deduction, which could be a problem for those who have experienced long-term unemployment.
Among the items that eligible job seekers can claim as a deduction are:
• Travel expenses, as long as the primary purpose of the trip was to search for a job. Whether a person's trip meets the primary purpose test depends on the facts and circumstances of a person's case, and this should be assessed by an experienced tax professional.
• Postage and preparation costs incurred to send resumes to potential employers.
• Fees provided to outplacement and employment agencies while engaging in the job search.
Even if these criteria are met, not all of the job search expenses will be deductable, however. Only those costs, in addition to other miscellaneous itemized deductions that are in excess of 2 percent of a person's adjusted gross income can be deducted.
Source: Internal Revenue Service, "Job Search Expenses Can be Tax Deductible," IRS Summertime Tax Tip 2012-06, June 12, 2012.