Losing your job and taxes

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By Alan Kalman, AARP

A significant number of individuals have lost their job over the last few years. Some of you will lose your jobs over the next few years. Previously in Part I of this two-part series, I discussed the tax consequences of losing one’s job. Here in Part II, I will discuss the tax deductions that may be available to you when you hunt for a new job.

Part II: Job Hunting Expenses

The good news for many of you who are looking for a new job, is that under the right set of circumstances, your job hunting expenses are tax deductible if you itemize your deductions. I say, “right set of circumstances” because for some of you, your expenses will not qualify for a deduction. The most important factor is that your expense must be incurred for searching for a job in your current occupation. It also cannot be a search for your first job. So, if you spent the last five years in college getting your bachelor’s degree and you are looking for your first job, you won’t get any tax deduction.

If you last worked as an accountant and you are looking for or find a job as a financial planner, you will not get a tax deduction. If several years have passed since you last worked, the IRS will take the position that you are looking for a job in a new occupation and there is no deduction. If you are unemployed and find a temp job in some other field (you were an accountant and now work as a short order cook to pay the bills) your expenses for looking for a job as an accountant will be deductible unless several years have passed. There is no bright-line test for what is the same or new occupation.

The important element is to focus on what you were doing and what your responsibilities were in your last job. Don’t just focus on job titles.

If you can get past the above hurdle, certain expenses for looking for a job (even if you don’t get the job) are tax deductible. These include:

  • Employment and outplacement fees.
  • Amounts spent for preparing and mailing resumes.
  • Telecommunication expenses.
  • Travel expenses for an interview or to look for work. Note that if a significant element of the trip is for personal pleasure or vacation, it will not be deductible. However, if you are on vacation and you incur some out of pocket expenses to look for a job while present in that area, those expenses would be deductible.

AARP_FOUNDATION_LOGOIf you go back to college to take some courses to improve your skills, you may be able to either take a deduction from gross income or obtain a tax credit. See IRS Pub 970 for details.

If you find a new job and can meet some time and distance tests, you can deduct your relocation and moving expenses.

Lastly, as mentioned earlier, you must itemize your deductions to claim these unreimbursed expenses. Job hunting expense is considered a miscellaneous itemized deduction subject to the 2% of AGI limitation. See the instructions for completing Line 21 of Form 1040 Schedule A.

AARP Foundation Tax-Aide’s 35,000 volunteers are ready to start serving taxpayers. With over 5000 locations nationwide, the AARP Foundation Tax-Aide program is prepared to assist millions of low to moderate income taxpayers of all ages with special attention to those aged 60 and older.

Visit www.aarp.org/findtaxhelp or call 866-623-1115 to get FREE help with your taxes.

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