News & Events
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August 2010
Squeezing Deductions Out Of Job Search Expenses
by Jack S. Johal
Because of the high rate of unemployment nationwide, many individuals are in a determined search to find new employment. Although taxes are no longer on their list of priorities, job-hunters may want to know whether job-hunting expenses are deductible, and what kinds of expenses qualify. This Bulletin reviews the rules for such expenses, as well as the related topic of job-related moving expenses.
Deductibility of Job-hunting Expenses
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 previously worked), then there's no deduction for job-hunting expenses. The 2%-of-AGI floor may be less of an impediment where the taxpayer lost his job early in the year.
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, a CPA who worked for an accounting firm could deduct expenses in seeking new employment as a CPA whether or not he eventually found employment as a self-employed CPA or in some other accounting capacity. Similarly, a CPA who was employed as a general manager by one employer could deduct the expenses of looking for a position as a controller of another company. A corporate executive serving as secretary-treasurer who obtained a position as controller and assistant to the vice president of finance at another corporation was also seeking employment in the same trade or business.
Types of Deductible Job-hunting Expenses
The following are examples of deductible job-hunting expenses:
- Employment and outplacement agency fees even if the fee is payable in any event and not contingent on the securing of a position. Nor does it matter that the taxpayer voluntarily terminated his relationship with the agency before a new position was secured. If an employee pays for an agency fee and is reimbursed for it by his employer, the reimbursement is includible in the employee's gross income; however, if an individual gets a job through an employment agency and the new employer pays the fee, then the fee isn't includible in income if the job hunter is not liable for it.
- Cost of preparing a resume.
- Job counseling 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 all meals.
In 2010, individuals who use their cars to look for a job can deduct 50¢ cents per job-hunting mile if they own their cars and haven't: (i) depreciated them in prior years using MACRS; (ii) expensed any of the cost of the auto under Internal Revenue Code ("IRe") Sec. 179; or (iii) claimed additional first year depreciation for the automobile. 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). Records of the time, place, mileage, and purpose of each trip must be kept. 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.
Expenses incurred by a taxpayer in seeking employment are deductible regardless of whether he or she actually obtains a new job. For example, a deduction was allowed for a fee paid in advance to an employment counseling firm which was not conditioned on the taxpayer obtaining a new position and which, in fact, failed to produce any job offers.
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 reimbursement doesn't constitute compensation income. The same rule applies 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 IRS Information Letter clarifies that under IRC Code Sec. 262(a), an individual cannot deduct personal, living, or family expenses, unless the deduction is specifically provided by another Code section. Examples of expenses related to looking for a new job that are nondeductible personal or living expenses are: (A) the cost of a new suit, shoes, and a tie for interviewing; (6) the cost of a phone, a fax machine, a computer, and phone and internet service; and (C) the cost of newspapers and magazines.
A loss incurred on forfeiture of a deposit for the purchase of a home in an area where the taxpayer expected to get employment is nondeductible. A real estate broker's commission on sale of a taxpayer's home in connection with move to a new job in another state is also nondeductible.
Deductible Job-related Moving Expenses
An employee or self-employed individual who moves his residence because of a change in his principal place of work may deduct the reasonable expenses of: (1) moving household goods and personal effects from the old residence to the new place of residence; and (2) traveling (including lodging, but not meals) from the old residence to the new place of residence. IRC Code Sec. 217(b)(1) If a taxpayer uses his auto to travel to the new home, he may deduct actual expenses (e.g., gas and oil) or for 2010, 16.5¢ per mile. Moving expenses are "above-the-line" deductions; they are deductible from gross income in arriving at adjusted gross income. (Code Sec. 62(a)(15))
The new job site must be at least 50 miles farther from the taxpayer's old principal residence than was the old principal job site. If he or she didn't have a full-time job before the move, the new job site must be at least 50 miles from his or her old residence. Code Sec. 217(c)(1) In addition, either: (a) during the 12month period immediately following his arrival, the taxpayer must be a full-time employee during at least 39 weeks; or (b) during the 24-month period immediately following his arrival, the taxpayer must be a full-time employee or be self-employed on a full-time basis, during at least 78 weeks, of which not less than 39 weeks are during the 12-month period immediately following his arrival.
Moving expenses aren't deductible to the extent they are reimbursed by the employer and the reimbursements are excludable from the taxpayer's income. A taxpayer excludes from gross income any qualified moving expense reimbursement. (Code Sec. 132(a)(6)) Such a reimbursement is any amount received, directly or indirectly, by the taxpayer from an employer as a payment of, or reimbursement for, moving expenses that would have been deductible had the taxpayer paid them directly. Expenses aren't excludable if the taxpayer actually deducted them in an earlier year. Code Sec. 132(g) Otherwise, an employer's payment or reimbursement is income to the employee. (Code Sec. 82)
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