Show of hands: Who's looking forward to doing their income taxes?
For those of you who didn't run away screaming, here are five rules to follow when you're deducting job search expenses on your 2010 federal tax return:
(1) You must itemize your deductions, using Schedule A and filing Form 1040.
That means your expenses must be lumped in with the other deductions that are itemized, such as interest on the mortgage of your primary home, property taxes, state and local income or sales taxes, and charitable deductions. Also, the total of your Schedule A deductions must exceed a certain amount depending on your filing status. For instance, if your filing status is "single or married filing separately," that amount is $5,700. If you're "married filing jointly or a "qualified widower," it's $11,400. "Head of household?" $8,400.
(2) You can only deduct expenses that exceed 2% of your adjusted gross income.
But if you were employed at any time during 2010 and had on-the-job expenses that were not reimbursed by your employer, they can be added to your job search expenses.
Example: Your adjusted gross income for 2010 was $60,000. Two percent of that is $1,200. If your job search expenses amounted to $1,000 and your unreimbursed work expenses were $500, you have $1,500 in expenses. Subtract the $1,200 from that, and you can deduct $300. Use Form 2106 and report that amount on Line 21 of Schedule A.
(3) You can only deduct expenses if you're looking for a job similar to the one you have.
In other words, if you're a firefighter but want a job as a bartender, you're out of luck.
(4) You can't take a deduction if you're looking for a job for the first time.
That would apply, for example, to a new graduate seeking his or her first entry-level job. You also can't take a deduction if there was a "substantial break" between the ending of your last job and the time you start to look for a new one. There's no clear definition of "substantial break," but roughly translated: If you're unemployed, don't travel the world for three months before you start looking for a new job. Start looking right away!
(5) You can't deduct everything.
You can deduct expenses for the following:
- Membership fees for your Pongo account. (You can contact Pongo's Customer Support team via chat, phone or email for a detailed statement of what you spent with us last year.)
- Resume preparation (e.g., printing, copying, having it rewritten by a professional)
- Mailing expenses
- Parking fees, tolls, public transit fares, and mileage (50 cents a mile) to and from interviews and networking meetings
- Lodging if, for example, you had to stay overnight before a scheduled job interview out of your local area
- Phone and fax charges (document how many minutes you spent talking with prospective employers and other contacts who led you to job possibilities).
But you cannot deduct meals and entertainment expenses. Bummer, I know, but look at it this way: You'd be eating no matter what you'd be doing, so this isn't an "out of the ordinary" expense. And entertainment fees are optional, no matter how you look at it.
Disclaimer: I'm not a tax specialist, but this information comes from the IRS web site and personal experience. If you want more information, read the IRS publication Six Tax Benefits for Job Seekers, and the more comprehensive IRS Publication 529.
Here are links to other IRS forms and publications that can help you:
What other tax tips do you have for job seekers? Tell us below in a comment.
RELATED LINKS
2009 Tax Tip: Job Search Expenses Are Deductible
Your Pongo Membership Could Mean Tax Savings
Are Your Finances Any Business of Your Employer?