Tax time is almost here. For jobseekers, there is some good news when April 15 arrives. Expenses not reimbursed while job hunting are tax deductible for those itemizing on Schedule A.
But before you get out your calculator and start whittling down your taxable income, it's a good idea to take a thorough look at the Internal Revenue Service's Publication 529: Miscellaneous Deductions. On Page 5, you'll find just six paragraphs on what is and isn't allowed for job searchers.
Unfortunately, what's printed there in black and white is not always black and white.
Saved by Syntax
"There are a lot of gray areas when it comes to the IRS," says Christina Varva, office manager of H&R Block's Los Angeles district headquarters. Some of the information is vague, and open to interpretation, she explains.
According to the IRS: "You can deduct certain expenses you have in looking for a new job in your present occupation, even if you do not get a new job."
You cannot deduct expenses if "you are looking for a job in a new occupation." But what is the definition of an "occupation?" Can a car mechanic deduct his or her expenses looking for a job as a car salesman? Can security guards deduct their expenses looking for work as police officers? Can a waiter or waitress deduct expenses looking for a job as a restaurant manager?
Yes, according to Varva, who interprets the code to mean the same "field." So a restaurant server can move up to restaurant manager.
IRS spokeswoman Debra Guajardo admits that the law is vague. "I don't think there's a hard and fast rule for everybody. Some of those occupations are gray areas . . . your case will have to be seen on its own merits."
As for the reasoning behind the occupation exception, Guajardo points to other breaks for those wishing to change professions, like education tax credits.
Take a Break, Lose a Break?
The IRS also says that you cannot deduct these expenses if "there was a substantial break between the ending of your last job and your looking for a new one."
But what constitutes substantial? One month? Two months? Three? Publication 529 doesn't offer any clues. If you used your severance pay to take a six-month trip to Tahiti, can you deduct these job-hunting expenses after you're tanned, rested and ready?
Guajardo offers little help: "These cases are taken individually. If you were called in for an audit on an expense you incurred and you had not been working for a substantial amount of time, it depends on the area of work, area of expertise, and things like that."
According to the IRS, you also cannot deduct expenses if "you are looking for a job for the first time." So you teens out there looking for your first big break flipping burgers at the local drive-thru can forget about itemizing your job-search deductions.
Guajardo says the law here is clear, but couldn't provide any reasoning behind it. "Basically, it's just how the law is written. For students who are looking for their first job, this is not a deduction."
The Brass Tacks
So if you're not looking for your first job, haven't taken a "substantial" amount of time off between gigs, and are not a former police officer aspiring to become an astronaut, what can you deduct? Some of the laws are clearer about that.
You can deduct expenses for typing, mailing and printing resumes, again, only if the new job is within your same occupation, according to Publication 529.
The same goes for travel-related expenses, as long as the primary reason for the trip is job hunting. So if you fly to Seattle to visit your Uncle Bob, and you make some job inquiries while there, the airfare to and from Seattle is not deductible.
However, if you visit your Uncle Bob in Seattle, and while there, visit a prospective employer, travel expenses to the interview, like mileage and parking on the way to the job location, are deductible. The standard mileage rate for 2001 is 34.5 cents.
If the primary purpose of the trip is job hunting, "the amount of time you spend on personal activity compared to the amount of time you spend looking for work is unimportant," Publication 529 says.
So once the big job interview in Seattle is over, take the rest of the day to check out the Space Needle with your Uncle Bob. Your Uncle Sam doesn't care.
You may also deduct employment or outplacement fees you pay in looking for a new job in your present occupation, the IRS says, unless your new employer covers those fees.
Beware the Gigabite
How about computers, palm pilots, or the other tools that may be used to search for a job?
"If you're buying a computer or Palm pilot just for a job search, I don't think that's going to fly," Guajardo cautions.
Varva also warns against deducting computers. "People are buying computers and saying they're 100 percent for business, but they're sitting in a home." That's a red flag for the IRS to give you an audit, she says.
"When you pay a fee to have your resume posted on a service like Monster.com, that would count. But your actual computer, forget it," Varva cautions.
"Anytime you deal with the IRS, half of it is the law, and the other half is the agent that you deal with, and whether they want to allow the deductions or not," Varva explains. "Some agents are out to get people, and other agents just let things go by."
If you take the job-search deduction and are called in for an audit, be ready, warns Guajardo. "You should be prepared to present what your occupation is, of course keep records, receipts and something that is going to hold up, like a logbook for mileage to substantiate what expenses you had," she advises.
The U-Haul Hitch
Another piece of good news for those job hunters who are relocating is the moving expense deduction. That's found on Line 26 of the standard 1040 form, and is for everyone, regardless of whether they're itemizing deductions on Schedule A.
You must meet two main requirements: time and distance. Your new job must be over 50 miles away and you must be at that job for at least 39 weeks during the 12 months after you move. You can deduct mileage for your personal vehicle at 12 cents per mile, as well as packing, shipping and lodging expenses. Details can be found in Publication 521.
All these publications can be found at irs.gov or requested by phone at 1-800-TAX-FORM.
As for the interpretation of all the forms, that's between you and your tax advisor.
For more information on preparing your tax return, contact:
- Internal Revenue Service - IRS.gov, (800) 829-1040,
all things IRS.
- State Franchise Tax Board - ftb.ca.gov, (800) 852-5711, information and forms for filing California taxes.
- National Association of Tax Professionals - taxprofessionals.com, (800) 558-3402, a nonprofit organization to help potential clients find CPAs, accountants, attorneys and financial planners.
- TaxSites.com - a list of tax and accounting websites.
- taxes.yahoo.com - resources, links, news, forms, calculators, almost everything you need for taxes.
- TaxPlanet.com - comprehensive tax resources edited by a former tax columnist for The New York Times.
- TaxWorld.org - provides links to tax information from state, federal, and international tax authorities on the Internet.