As the published jobless rate continues to hover near 10% nationwide, many individuals are engaged in a search to find employment. These job-hunters should know whether job-hunting expenses are deductible, and what kinds of expenses qualify.
When are job-hunting expenses are deductible? An individual's expenses in looking for a job in his or her line of work can be claimed as miscellaneous itemized deductions (subject to the 2%-of-AGI floor). However, if an individual is looking for work in a new field (or has not worked before), then there's no deduction for job-hunting expenses.
When determining whether an individual is seeking work in his field, the focus is on the nature of the employment rather than the status of employment. For example, an engineer who worked for an engineering firm could deduct expenses in seeking new employment as an engineer whether or not he eventually found employment as a self-employed engineer or in some other engineering capacity.
Types of job-hunting expenses that are deductible. The following are examples of deductible job-hunting expenses:
• Employment and outplacement agency fees
• Cost of preparing a resume.
• Job counselling and referral services.
• Legal expenses to get reinstated on a civil service list of eligibles.
• “Professional career consultants.”
• Travel expenses if undertaken primarily to look for a new job. If a person travels out of town for a job interview he may deduct the round-trip travel cost, plus lodging and 50% of meals.
• Individuals who use their cars in 2010 to look for a job can deduct 50¢ cents per job-hunting mile if they own their cars and haven't (a) depreciated them in prior years using MACRS, (b) expensed any of the cost of the auto under Code Sec. 179, or (c) or claimed additional first year depreciation for the auto. A taxpayer may use the mileage allowance method for a leased auto only if he uses that method (or a fixed and variable rate (FAVR) allowance method) for the entire lease period (including renewals). They must keep records of the time, place, mileage and purpose of each trip. ( Rev Proc 2009-54, 2009-51 IRB 930 ) Alternatively, individuals who keep records of all expenses in addition to the mileage record can deduct actual expenses plus depreciation (or lease payments), in the ratio of total annual business miles to total miles traveled during the year. Job-hunting mileage qualifies as business mileage. (See, e.g., Campana, TC Memo 1990-35)
Expenses incurred by a taxpayer in seeking employment are deductible regardless of whether he actually obtains a new job. When a job-hunter must travel out of town for a job interview, a prospective employer may reimburse the applicant's out-of-pocket costs (travel, meals and lodging). As long as the reimbursement doesn't exceed actual expenses, the applicant doesn't wind up with compensation income. That's true whether or not the applicant actually gets an offer or if an offer is made, accepts the job.
What's not deductible as job-related expenses? A recently released Information Letter points out that under Code Sec. 262(a), an individual cannot deduct personal, living, or family expenses unless the deduction is specifically provided for by another Code section. Examples of expenses related to looking for a new job that are nondeductible personal or living expenses are: (1) the cost of a new suit, shoes, and a tie for interviewing; (2) the cost of a phone, a fax machine, a computer, and phone and internet service; and (3) the cost of newspapers and magazines.
When are job-hunting expenses are deductible? An individual's expenses in looking for a job in his or her line of work can be claimed as miscellaneous itemized deductions (subject to the 2%-of-AGI floor). However, if an individual is looking for work in a new field (or has not worked before), then there's no deduction for job-hunting expenses.
When determining whether an individual is seeking work in his field, the focus is on the nature of the employment rather than the status of employment. For example, an engineer who worked for an engineering firm could deduct expenses in seeking new employment as an engineer whether or not he eventually found employment as a self-employed engineer or in some other engineering capacity.
Types of job-hunting expenses that are deductible. The following are examples of deductible job-hunting expenses:
• Employment and outplacement agency fees
• Cost of preparing a resume.
• Job counselling and referral services.
• Legal expenses to get reinstated on a civil service list of eligibles.
• “Professional career consultants.”
• Travel expenses if undertaken primarily to look for a new job. If a person travels out of town for a job interview he may deduct the round-trip travel cost, plus lodging and 50% of meals.
• Individuals who use their cars in 2010 to look for a job can deduct 50¢ cents per job-hunting mile if they own their cars and haven't (a) depreciated them in prior years using MACRS, (b) expensed any of the cost of the auto under Code Sec. 179, or (c) or claimed additional first year depreciation for the auto. A taxpayer may use the mileage allowance method for a leased auto only if he uses that method (or a fixed and variable rate (FAVR) allowance method) for the entire lease period (including renewals). They must keep records of the time, place, mileage and purpose of each trip. ( Rev Proc 2009-54, 2009-51 IRB 930 ) Alternatively, individuals who keep records of all expenses in addition to the mileage record can deduct actual expenses plus depreciation (or lease payments), in the ratio of total annual business miles to total miles traveled during the year. Job-hunting mileage qualifies as business mileage. (See, e.g., Campana, TC Memo 1990-35)
Expenses incurred by a taxpayer in seeking employment are deductible regardless of whether he actually obtains a new job. When a job-hunter must travel out of town for a job interview, a prospective employer may reimburse the applicant's out-of-pocket costs (travel, meals and lodging). As long as the reimbursement doesn't exceed actual expenses, the applicant doesn't wind up with compensation income. That's true whether or not the applicant actually gets an offer or if an offer is made, accepts the job.
What's not deductible as job-related expenses? A recently released Information Letter points out that under Code Sec. 262(a), an individual cannot deduct personal, living, or family expenses unless the deduction is specifically provided for by another Code section. Examples of expenses related to looking for a new job that are nondeductible personal or living expenses are: (1) the cost of a new suit, shoes, and a tie for interviewing; (2) the cost of a phone, a fax machine, a computer, and phone and internet service; and (3) the cost of newspapers and magazines.
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