Cliff Beacham CPA | email cliffbeacham@cpa.com | California | Tel: (949) 813-1349
If you have been looking for work, you can, at least deduct certain of your job hunting expenses.
You can deduct these expenses:
- whether or not you are currently employed, and
- whether or not you actually find a job.
However, there are some limitations
So where Do I Claim the Deduction for Job Search Expenses?
Job hunting expenses are categorized as a “miscellaneous deduction” and should be reported on Schedule A
(Itemized Deductions) of Form 1040
This does mean you will have to itemize your deductions in order to deduct your job search expenses
And it also means that you can only benefit from this deduction if the sum of your miscellaneous deductions
exceeds 2% of your Adjusted Gross Income (AGI).
What Kind of Job Hunting Expenses Can I Deduct?
Probably, the largest expenses you will incur are:
1) resume costs - ie: the costs of writing and mailing your résumé
Nearly all expenses that are related to your résumé are eligible for a deduction. This includes hiring a professional to
edit and format your résumé, as well as the cost of paper, printing, and postage
2) fees charged by job placement agencies and career councelling
Job placement agencies typically provide career counseling and can help match you with potential employers. The
money that you pay these agencies directly is eligible for the deduction
3) travelling to interviews
If you are traveling to look for work, then you can deduct your travel expenses. However, you must be careful about
combining personal travel with job search travel
Keep in mind, this could conceivably be in a different tax year than when you took the deduction
For example, suppose you traveled from Los Angeles to New York for a job interview in December 2016, and the
company reimbursed you for your travel in 2017. You could likely deduct the cost of travel as a job hunting expense
on your 2016 tax return, but you would have to claim the reimbursement as income on your 2017 return
New Career?
Sorry, the IRS only allows you to deduct job hunting expenses if you are looking for a job in the same line of work as
your current occupation
You also cannot claim the job hunting expense deduction if you are looking for your first job
Finally, you cannot deduct your job search expenses if there is a large gap in between the time you left your previous
job and the time you began searching for a new job. The IRS does not clearly specify how long this gap can be — but,
for example, if you took a year off work to spend time with your children, you will not qualify for a tax deduction
Despite these limitations, the deduction for job hunting expenses is something to keep in mind, both during your job
hunt and while preparing your taxes
For more information,
1. Please see Page 5 of IRS Publication 529 (Miscellaneous Deductions)
2. Call Cliff at (949) 813-1349
Job Search Expenses
Cliff Beacham CPA | email cliffbeacham@cpa.com |
California | Tel: (949) 813-1349
Job Search Expenses
Some hobbies generate income; some may eventually develop into
a business
The IRS treats hobbies differently from a trade or business. The crux
of the matter is that the IRS does not want a taxpayer to be able to
write off hobby expenses by calling them trade or businesses
expenses
So, the first question is whether the activity is a hobby or a trade or
business
The tax law does not define a “trade or business” but for it to be a
trade or business, an activity must have a profit motive and some
kind of economic activity
So what defines a profit motive –
The IRS uses a list of things to consider whether an activity is for
profit
- all of which must be considered together:
What is the possibility of profit?
Does the taxpayer depend on the activity as a source of
income?
Is the activity carried out in a businesslike manner?
How much time and effort does the taxpayer spend on the
activity?
Are losses from the activity the result of sources beyond the
taxpayer’s control?
Has the taxpayer changed business methods in attempts to
improve profitability?
What is the taxpayer’s expertise in the field?
What success has the taxpayer had in similar operations?
Will there be a possibility of profit from asset appreciation?
Presumption of profit motive: If an activity shows a profit for any 3
or more years during a period of 5 consecutive years then the IRS
will presume that a taxpayer has a profit motive
Note: if the activity involves breeding, training, showing or racing
horses, the period is 2 out of 7 years
Of course, any activity that is reported on a tax return as a business
but has had year after year of losses and no gains will probably
eventually come under scrutiny by the IRS
Tax Treatment of Hobbies - if an activity is deemed to be a hobby,
then “hobby loss” rules – apply. Under these rules, any income
from the hobby is reported on the face of the tax return, and the
expenses are only deductible if a taxpayer itemizes their
deductions on Schedule A. In addition, hobby expenses are limited
by category as follows:
Category 1: In this category expenses are reported on the
appropriate lines of Schedule A as they would be if no hobby
activity existed and includes deductions for home mortgage
interest, taxes, and casualty losses
Category 2: Most expenses that a business would incur, such as
those for advertising, insurance premiums, interest, utilities,
wages, etc., belong in this category. They don’t result in an
adjustment to the basis of property but only to the extent that
gross income from the activity is greater than the deductions
under Cat 1
Category 3: Depreciation and amortization belong in this last
category. These deductions are allowed, but only to the extent
that the gross income from the activity exceeds the deductions
under categories 1 & 2 above. In other words category 3 is not
intended to create a loss as a net result
Note: Taxpayers have to claim the amounts in categories (2) and (3)
(as miscellaneous deductions on Schedule A) which are subject to
the 2% AGI reduction; as a result, they are not deductible for AMT
2. Call Cliff at (949) 813-1349
