Can I Deduct Job Hunting Expenses While on Unemployment?

Finding a job during the recession can itself be a full-time gig, but you can make it worth your while by deducting job-hunting expenses on your taxes. However, not all expenses count as a job-hunting cost, so you have to be careful not to commingle personal and business needs. Whether or not you find a job, you may qualify for additional tax breaks.

Identification

You can deduct job-hunting expenses while on unemployment insurance, but only if you search for a job in the same industry as your previous position. For example, if you were a nurse, you can look for a job as a nursing assistance, but not as a financial analyst. You also must look for work immediately after losing your job. Any substantial break can nullify your deduction. There is no set time limit, so you must use your best judgment. If you haven't looked for a job in half a year, for instance, this probably counts as a significant break. You cannot deduct the cost of looking for your first job.

Deductions

The IRS lets you deduct anything as a job-hunting expense as long as it is ordinary and necessary. For example, you can deduct the cost of mailing a resume, traveling to job interviews and employment agency fees. You do not have to find gainful employment, but if you receive reimbursement later on, you must repayment some of your deduction. The expenses you incur must primarily be for business reasons. Taking a vacation to Acapulco won't count, unless you go there to look for work.

Income Limit

High earners often cannot deduct job-hunting expenses because they appear on Schedule A, which means only those costs that exceed 2 percent of gross income are deductible. For instance, if you had an adjusted gross income of $100,000, only expenses that exceed $2,000 count for the deduction.

Considerations

You should always consult with a tax professional when you have a major life event like unemployment. Even if you do not qualify to deduct job search expenses, you can go back to school and claim an education tax credit, such as the Lifetime Learning credit. If you start a new business, you can claim business expenses like setting up a home office. Once you land a job, you can deduct relocation costs if the job is at least 50 miles away from your previous address.

References

• IRS.gov: Seven Tax Tips for Job Seekers; July 2011
• Intuit; Tax Tips: In Search of a Job? Your Job Search Expenses May Be Deductible; Michael Rubin; August 2011
• Bankrate.com; Job Hunting Could Help Cut Taxes; Kay Bell; February 2011
• CNN; Last-Minute Tax Breaks For The Unemployed; Blake Ellis; April 2011