SEARCHING FOR JOB SEARCH DEDUCTIONS
Despite rising unemployment, Congress has done nothing to ease the tight restrictions on claiming deductions for job search expenses. The tax code limits write-offs for job hunting expenditures and most other miscellaneous expenses that are claimed as itemized deductions on Schedule A of Form 1040.   

The Internal Revenue Service broadly defines miscellaneous expenses. They include outlays for such items as unreimbursed employee business expenses and fees for advice on taxes or investments. The IRS allows deductions for miscellaneous expenses only to the extent that, in the aggregate, they exceed two percent of adjusted gross income (AGI), the amount entered on the last line of the first page of the 1040 form.

Let’s say that Hester Dimmesdale works in publishing and fears she soon will be sacked. Hester anticipates an AGI of $100,000 and that she will shell out at least $3,000 for job hunting and other miscellaneous expenses, such as her payments to NYFWA for membership dues and attending meetings.

Hester has to forfeit any deduction on Schedule A for the first $2,000 of her miscellaneous expenses (two percent of $100,000). So her allowable write-off shrinks from $3,000 to $1,000. It evaporates completely if she runs afoul of the alternative minimum tax, which disallows most miscellaneous expenses or if Hester decides to use the standard deduction, rather than itemize.

Her allowable search expenses include job agency and career counselor fees, resumes, postage for mailing applications, and ads in newspapers, trade magazines and websites. Hester can even deduct travel and hotel costs for interviews (to the extent she is not reimbursed by prospective employers).

On the down side, Hester can take deductions only for expenses to find a new job in the same line of work. The IRS allows those deductions even if she decides against leaving her present position or fails to find another one. But it disallows deductions for looking for new employment in a different line of work. This holds true even if her quest succeeds.

If Hester is unemployed when looking for work, the IRS says that her occupation is what she did for her last employer. Too bad if hardly any jobs are available in her previous field of work.

All is not lost if jobless Hester previously worked at different jobs. Presumably, it’s okay for her to cite any of those past positions, provided it was recent, to establish that she seeks a new job in the same line of work.

The IRS requires Hester’s previous job to be a recent one because it deep-sixes deductions when there is a "substantial break" between the previous one and her present hunt for work. An otherwise engaged agency has yet to explain how much time must elapse before a spell of unemployment becomes sufficiently lengthy to justify disallowance of job-search deductions. Nevertheless, it prohibits any write-offs when there is a substantial break between Hester’s last job and her present search. It also nixes deductions when Hester enters the job market for the first time because, for example, she is just out of college.

To illustrate, the IRS bestows no tax balm on a teacher who switches to selling for a few years and now wants to resume teaching. A compassion-challenged IRS is similarly unmoved by the plight of a woman who leaves work and settles in for several years as a stay-at-home mother or as a caregiver for an ailing parent or other family member, until her husband’s job loss obliges her to look for work.

NYFWA member Julian Block is an attorney and author based in Larchmont, N.Y. He has been cited as “a leading tax professional” (New York Times) and "an accomplished writer on taxes" (Wall Street Journal). Information about his books is at www.julianblocktaxexpert.com. Copyright 2010 Julian Block. All rights reserved.