Job Search Expenses Can Lower your Taxes
Searching for a new job can take a lot of work and effort. It can also cost money, including expenses associated with travel, mailing, transportation, correspondence, phone calls and more. Fortunately, some of those costs are not total losses. They can be claimed on your tax return as a deduction, potentially providing some much-needed tax savings. Read on to find out how.
Tax Deduction Basics
Job-search expenses fall under the category of job-related expenses. These expenses are recognized by the IRS as eligible costs that reduce one’s total, taxable income. It’s important to understand what this means. When a person’s income is taxed, adjustments and deductions are allowed to be subtracted from the gross total. Itemized deductions can include job-search expenses if a person does not instead claim a standard deduction. However, with deductions, sometimes they have to meet certain totals first, such as 10% of income earned, or only a percentage of the deduction amount can be applied. Unlike a tax credit, which is a dollar-for-dollar reduction of taxes owed when applied, eligible deductions only reduce a portion of a tax dollar for every deduction dollar claimed. That said, every dollar reduced from taxes is a dollar saved for personal use. So it matters either way.
Specific Requirements
Job-search expenses count when 1) a person itemizes his deductions versus taking the standard deduction, and 2) the costs along with all other miscellaneous deductions (these categories are identified by the IRS) total up to more than 2 percent of a person’s adjusted gross income (AGI). The AGI figure is determined when a person’s gross income (everything earned) is reduced by adjustments (personal exemptions for family members for example) but represents remaining income before deductions are applied. Further, the minimum threshold grows higher as a person’s income rises. So a person earning $50,000 in a year needs to have at least $1,000 in miscellaneous deduction expenses to use them on a tax return. A person earning $100,000 needs to exceed $2,000 in costs and so on.
What is Allowed to be Deducted?
Not every job expense will count either. Eligible job-search costs include photocopying of resumes, postage, fees charged by placement agents, headhunter fees, and travel specific to a job search (i.e. travel costs to and from an interview in another city). Additionally, the IRS puts a search type limit on eligible costs. The Job-search itself needs to be in the same line of work and function as the job last worked. So jumping into a new career doesn’t count. For example, earning a certificate to switch from being a teacher to being a firefighter is not allowed as a job-search expense. However, it could be used instead under a tuition cost deduction elsewhere on a tax return, so not all is lost.
There are many ways to save money on your taxes for your job search, but you’ll need to know the rules. If you’re in any doubt as to what you can and can’t deduct, consult a tax professional. And if your job search is still active, use LiveCareer’s Resume Builder to create, print and send a professional resume that will grab employers’ attention and put you on the road to the job you want.
Source: www.livecareer.com