Unfortunately, the expenses you incur to find a new job generally fall at a time when you’re least able to afford them. To help with these costs, the federal government offers a number of income tax deductions and tax credits.
You’re allowed to deduct certain job search expenses, job-related moving expenses, and education and training expenses for income tax purposes. You may even qualify for a federal tax credit if you’re planning to attend college.
Be sure to keep receipts and other supporting documents to substantiate your expenses for tax time.
Job Search Expenses
Generally, you can claim your job hunting expenses as itemized deductions on your federal income tax return―as long as you’re looking for work in your current occupation. You don’t have to be unemployed in order to deduct such expenses, and you don’t have to actually find a new job.
However, you cannot deduct expenses related to your job search if you’re looking for a job in a new line of work or if you’re looking for your first job. Likewise, you cannot deduct these expenses if there was a substantial period of time between your last job and the start of your new job search.
Job search expenses are miscellaneous itemized deductions for federal tax purposes, which means you can deduct allowable expenses only to the extent that they exceed two percent of your adjusted gross income.
Allowable expenses include the following:
employment agency and outplacement agency fees―although if you’re reimbursed for these fees in a subsequent year, that reimbursement is taxable income to you up to the amount of your tax benefit in the earlier year
professional career counseling
job counseling and referral services
phone calls to prospective employers
creating, producing and distributing your resume
local travel expenses
out-of-area travel expenses for trips, if the primary purpose of the trip was to look for a new job. These expenses include the cost of round-trip travel, lodging and 50 percent of the cost of your meals. Even if can’t deduct your travel costs to and from the area, you can deduct your job search expenses while you’re actually there.
Job-Related Moving Costs
If you find a new job in a new city―or your existing job transitions to a new city―you may be able to deduct your relocation costs even if you don’t itemize deductions. How far you move and the amount of time you stay with the new job determine if you qualify for a tax deduction.
Distance Test Your new job must be at least 50 miles further from your former home than your previous job. In other words, your new job must add at least 50 miles to your prior commute. If this is your first job, the job must be at least 50 miles from your previous residence.
Time Test You must work full-time for at least 39 weeks during the first twelve months after your move. You’re not, however, required to work all 39 weeks for the same employer. If you’re self-employed, you must work for at least 39 weeks during the first twelve months and at least 78 weeks during the first 24 months after your move. You can take the deduction in the year of your move, as long as you expect to satisfy these requirements.
According to the IRS, reasonable moving expenses include the cost of moving your household goods and personal effects, and of travel to your new home. You can deduct lodging costs but not the cost of meals while in transit to your new home. You cannot deduct any part of the purchase price of your new home and you cannot claim expenses covered by reimbursements that are excluded from income.
For a more detailed list of deductible and nondeductible moving expenses, refer to IRS Publication 521 Moving Expenses.
Training and Education Costs
Generally, you can deduct your unreimbursed education and training costs, but only if they are related to your current job. You cannot deduct costs that you incur to train for a new or better job.
You may also be eligible to deduct transportation expenses if you drive your car to and from school for work-related education.
In addition, if you’re planning to attend college, you may qualify for a federal tax credit to reduce the costs of higher education: the American Opportunity Credit (which modifies the Hope Credit for 2010) or the Lifetime Learning Credit. The eligibility requirements, eligible institutions, qualifying expenses and calculations are different for each credit―and tax benefits phase out for those with higher taxable incomes.
For more information on these credits, see IRS Publication 970, Tax Benefits for Higher Education.