March Madness means more than basketball. Can you say, tax time? If you spent a chunk of time and money on the job hunting trail last year, you probably have a tidy pile of receipts stashed in an envelope or file to show for it.
Anyone who has put together a natty new resume on high-quality paper, mailed it out the old-fashioned way, bought new business cards, traveled back and forth to job interviews, or attended a networking event is painfully aware of the price tag. The simple nuts and bolts of marketing yourself can be pricey. Believe me, those $10 parking garage tickets do add up to a sizeable sum.
You’ll be grateful for rigorous record-keeping. I recommend keeping a journal with notations of what you did each day toward your job-hunt and what money you spent even if you don’t have a paper receipt.
Itemized deductions, which typically include mortgage interest, real estate taxes, certain medical bills, and charitable deductions, must exceed $5,700 for individuals or $11,400 for married couples. Guidelines are laid out in IRS Publication 529.
The “miscellaneous expenses” rules can be baffling. The basic one is that you can claim the amount of expenses that is more than 2% of your adjusted gross income, so be sure to save all your receipts from the reams of printer paper used to spit out your resume to train tickets to parking lot chits and keep track of your car mileage as you drive to and from appointments.
Some important caveats. If you fall under the alternative minimum tax, you won’t have any write-offs. Then too, these deductions might not help you much if your spouse is pulling in a healthy income, or you have a substantial severance payout. If your AGI is $100,000, for instance, your miscellaneous deductions must exceed $2,000; if they add up to $2,200, you can deduct $200. See IRS Publication 17, Your Federal Income Tax, for more information.
These tax deductions apply to job searching in your current profession. If you’re switching careers, they’re off-limits. And first-time job seekers are shut out of any of the deductions. Moreover, the IRS does not permit deductions after a “substantial break” between your last job and your current job. It doesn’t detail what it means by a “substantial break,” however.
Here are the items you can deduct if you meet the above criteria:
- Outplacement fees. If you land a new job through an outplacement agency’s efforts, you can deduct the fees associated with using their services. Career coaching fees can usually be deducted too.
- Resumes. Resume preparation fees, paper, inkjet cartridges and printing costs for your resume and postage to send it on its way are deductible costs.
- Travel and meals. You can deduct travel costs that are strictly related to your job hunt. This can include transportation outlay, such as car mileage (reimbursed at 51 cents for the first six months of 2011 and 55.5 cents a mile for all business miles driven from July 1, 2011 through Dec. 31, 2011 ) and airfare, as well as hotel room charges if you’re in another city for an interview.
- Internet costs. Work-related wi-fi charges, online jobs sites that charge a fee, and networking services like LinkedIn’s fee for an upgraded professional access are deductible.
- Childcare. Need to hire a babysitter to watch your kids while you’re out on an interview? You can probably deduct his or her wages, but you need to be diligent about your record-keeping. Be forewarned. Some tax pros disagree about this one, so be sure to have your paperwork.
- Skill-building. If you pay to take seminars, job training courses, or attend networking events, the charge is usually deductible, but you must be able to prove that it’s connected to your job search.
- Dues, subscriptions and professional association fees can also be deducted.
- Moving costs. If you accept a job in another state, you can probably write-off all expenses associated with your move, from packing boxes to shipping. Brace yourself–the moving rules are a little wacky. Unreimbursed moving expenses may be written off even if you don’t itemize deductions. But the new job typically must be at least 50 miles away from your previous one. You must also be employed at your a new job for a certain time period after you move, which differs depending your working for yourself or an employee. For details, see IRS Publication 521.
- What’s not on the allowable deduction list? Haircuts, botox treatments and face lifts, new “interview” clothes, a briefcase, and tuition to learn new skills for a job change. Most unemployed taxpayers don’t qualify to deduct healthcare costs. You can write off only those out-of-pocket medical and dental expenses that exceed 7.5% of your adjusted gross income.
Flying solo. Job-seekers who are freelancing can set up a sole-proprietorship business reported on Schedule C of the tax return. You can deduct a home-office, plus a whole set of job hunting costs, including travel for interviews and résumé-preparation free of the restrictions that fall under that 2 percent rule. Better yet, career changers can write these costs.
If you set up a Schedule-C business, your health-insurance premiums should be fully deductible. Deductions for your home office, which must be dedicated to work, will encompass a range of your basic business expenses from supplies to a computer, printer and more. The IRS does keep track, so you’ll want to push to show a small profit at least three years out of five.
You should also be aware of what the government considers taxable.
1. Severance pay is taxable. If you accepted a severance package and benefits when you parted ways with your former employer, or were paid for unused vacation and sick leave, that’s considered taxable income. Be sure enough taxes are withheld from these payments by your former employer, or make estimated payments. See IRS Publication 17, Your Federal Income Tax, for more information.
2. Unemployment pay is taxable. Go to IRS Publication 525 for help, as well as the IRS publication, The Tax Impact of a Job Loss.
Bottom-line: When filing your taxes, step up and take all the deductions you are legally allowed to. If you’re on the job hunt now, be obsessive about saving all those receipts. If the IRS says you can write it off, do it. I highly recommend you seek out professional tax help if you are at all unsure. You never know, you might sink a three-pointer. Swish.