Does my job search qualify?
Your job search can qualify for the deduction regardless of whether your search is voluntary (you have a job but have decided to pursue other opportunities) or involuntary (you were fired or laid off).
However, you cannot deduct expenses related to your first job in your field. For example, if you just graduated college and are looking for your first job, the expenses aren’t deductible (However, you may be able to deduct moving expenses if you relocate for your first job). Or, if you’re a teacher and want to quit your job and manage a restaurant, for instance, you’re not eligible.
Finally, there cannot be a substantial break between your previous job ending and your job search beginning. Admittedly, this is somewhat open to interpretation, but generally speaking, it means you should begin to look for a new job very shortly after leaving your previous job if you plan on deducting your expenses. For example, if you quit your job to stay home with your children and then start looking for a new job two years later, those expenses wouldn’t be deductible.
If your situation is borderline in any of these respects — let’s say that you aren’t sure whether your prospective new job is really in the same field — it’s best to consult a tax professional before taking the deduction.
What receipts should I save?
While this isn’t necessarily an exhaustive list, common job search expenses that can be deducted if you qualify include:
- Employment agency fees
- Costs associated with printing, preparing, and mailing your resume
- Travel expenses, if the primary purpose of the trip was to look for a new job. This includes mileage driven to job interviews.
Caveat 1: You need to itemize
There are two big limitations to taking the deduction for job search expenses, even if you qualify. First, you have to itemize deductions to be able to take advantage of it.
Here’s a thorough discussion that can help you determine if itemizing is a good idea, but generally your total deductions need to be greater than the standard deduction for itemizing to make sense. For the 2017 tax year, the standard deduction is $6,350 for single taxpayers and $12,700 for married taxpayers filing jointly.
Caveat 2: Your miscellaneous deductions need to exceed 2% of your AGI
In addition, the deduction for job search expenses is considered a “miscellaneous itemized deduction.” Taxpayers can only deduct expenses in this category that exceed 2% of adjusted gross income, or AGI.
Examples of common miscellaneous itemized deductions include:
- Job search expenses
- Educator expenses
- Licenses and regulatory fees related to your job
- Cost of a passport, if you obtained it as a requirement for a business trip
- Work-related education expenses
- Union dues
- Other unreimbursed employee expenses
- Tax preparation fees
- Investment fees and expenses
- Safe deposit box rental
The deduction can be quite lucrative, especially if you have other miscellaneous deductions
While there are limitations, the deduction for job search expenses can be lucrative if you qualify. For example, let’s say that your AGI is $40,000 in 2017 and that you spend $1,000 searching for a job. Since 2% of your AGI is $800, you can deduct $200 of your job search expenses if you don’t have any other miscellaneous deductions. However, if your other miscellaneous deductions are $800 or more, you can deduct the entire $1,000 you spent looking for a job.
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Source: Motley Fool