Our author, Harry Collias, an H&R Block tax specialist, has updated his article to apply to your 2005 tax return. This year he's also added a section on moving expenses. This article has NOT been updated for 2006 and 2007, so do not depend on this advice for those tax years!

[The original version of this article was appeared in the January 28, 2004, issue of the Online Job Search Guide, Job-Hunt's free twice-a-month e-mailed newsletter.]

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Expenses incurred in the course of searching for a new job can be a deduction against your taxable income.

The Internal Revenue Service has laid down some rules and erected at least one hurdle, but the deduction can make a difference in your final tax bill. Many job seekers are unaware of this tax benefit; here's how you can take advantage of it.

First, the Rules:

You can deduct certain unreimbursed expenses you incur in looking for a new job, whether or not you are unemployed at the time of the job search, and whether or not you land a new job.

You cannot deduct job search expenses if:

1. You are looking for a job in a new occupation, or
2. There has been a substantial break between the ending of your last job and your looking for a new one, or
3. You are looking for a job for the first time.

If you pass the "cannot" rules (above), then you can deduct

1. Employment and outplacement agency fees.
2. Costs of typing, printing, and mailing copies of your resume.
3. Phone and fax expenses, including long distance calls to prospects.
4. Travel and transportation expenses if you have to travel outside your home territory to look for, or interview for, a job.

   The trip must be primarily to look for a job. The term "primarily" refers to the amount of personal activity on the trip compared to the amount of time you spend in looking for work. Even if you cannot justify deduction of travel expenses you can still deduct the expenses of looking for a job while in the area.

   If you drive you can deduct the standard mileage rate, which changed during the year to reflect the increased price of gasoline. Miles driven before September 1, 2005, must be deducted at the rate of 40.5 cents per mile; miles driven after August 30, can be deducted at the standard mileage rate of 48.5 cents per mile.

Then, the hurdle:

Job search expenses are classified as "miscellaneous itemized deductions." This class of deductions (which include union dues, work clothes, and tax prep fees) is only deductible from your income if you itemize deductions and only to the extent that the total exceeds two percent of your adjusted gross income. Publication 529 on-line at www.irs.gov explains all about job search expenses.

Moving Out of the Area?

If you’ve landed that new job, and it’s more than 50 miles further away from your former home than your previous job, you can deduct expenses for moving household goods and personal effects, and for travel to the new location. Just make sure you work full time in the new location for 39 weeks during the first 12 months. The best news (if you meet the “distance” and “time” tests) is that you can deduct your expenses right off your income and don’t have to worry about the “miscellaneous itemized deductions / 2%” hurdle. Publication 521 on-line at www.irs.gov has all the details.

Finally, some advice:

Whether job hunting or moving to that new job, keep detailed records of your expenses as you incur them so you have records, in case of audit, and never include expenses for which you have been reimbursed by a new or prospective employer.

© Copyright 2006 Harry Collias. All rights reserved.

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Harry Collias is a tax specialist at H&R Block. His five-year second career at Block followed a 25-year stint in management at Digital Equipment Corporation.

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