Nobody likes preparing their taxes (and if you do, search for tax accountant jobs now!), but they're one of the many inevitable pains of life, like going to the dentist or paying road tolls. While we can't make the process disappear, we can help job seekers and anyone who dealt with job loss last year understand what can and can't be deducted as a job search expense on your tax return.
By now, you should have received your W-2 and other tax forms in the mail so it's time to get cracking. Before you begin, make sure you have all of your important documents together. This year, the IRS has partnered with a number of companies to provide free filing services to taxpayers who meet eligibility requirements, found at http://apps.irs.gov/app/freeFile/.
What you CAN deduct:
- Employment and outplacement agency fees that you pay while looking for a job in your current occupation. Note that if an employer pays you back for those fees a year later, you must include that amount in your adjusted gross income up to the amount of your tax benefit for the previous year.
- Any money spent preparing and mailing copies of your resume to prospective employers, as long as you're looking for a job in your present occupation.
- Traveling expenses to and from an interview or area, but only if the trip is to look for a new job in your present occupation. You can use the standard business mileage rate of 50 cents per mile to figure your car expenses.
- Long distance phone calls to potential employers while looking for a job in your current occupation.
- Legal fees related to doing or keeping your job
- Annual licensing or regulatory fees for your trade, business or profession
If you haven't caught it yet, you may only deduct job search expenses while looking for a job in your current occupation.
What you CAN'T deduct:
- Any expenses related to looking for a job in a new occupation
- Clothing or other grooming (hair cut, manicures, etc.) expenses to prepare for an interview
- A home office used for your job search
- Expenses and fees for classes taken to learn new skills outside of your current occupation
- You may not deduct job search expenses if there was a substantial break between the end of your last job and the beginning of a job search
- You can't deduct job search expenses if you're looking for a job for the first time
See the IRS Publication 529 for more information about what job search expenses can and can’t be deducted.
For those dealing with a job loss:
- Severance pay, unemployment compensation are taxable, as well as payments for any accumulated vacation or sick time (See IRS Publication 17 for more info.)
- Unemployment insurance benefits up to 26 weeks are taxable, as well as your extended benefits up to an additional 13 weeks (See IRS Publication 525 for more info.)
- Withdrawals from your pension plan are taxable unless they are transferred to a qualified plan, such as an IRA (See IRS Publication 575 for more info.)
- Moving costs from a change in your job location may be deductible, though it depends on certain criteria, such as the distance moved and timing of the move (See IRS Publication 521 for more info.)
True, taxes can be difficult, but there are benefits for job seekers who were actively looking for a new job in their occupation. Hopefully these tips can help you maximize your 2010 tax return.
DISCLAIMER: All information was found on the IRS website. If you have questions or are uncertain about any of the above points, please contact the Internal Revenue Service or a legal aid. This post is for guidance only.
