Tax Breaks for Job Search and Moving Expenses
Looking for a new job can be stressful, especially when relocation is necessary. But the Federal government has taken steps to ease the stress of career transitions by offering deductions for certain expenses related to job searches and moving. To qualify for these tax breaks, however, you must meet certain conditions, and you must maintain detailed records.
Job Search Expenses
Many of the expenses incurred in the course of looking for a new job can be deducted from your taxable income, even if you are currently employed or don’t find a new job as a result of your search. While the costs associated with a job search may appear minimal, they can add up, especially if the search involves travel or requires professional services.
Under Internal Revenue Service (IRS) rules, you are permitted to deduct certain expenses if you are looking for a new job in your present occupation. However, you cannot deduct these expenses if you are a first-time job seeker, if you are searching for a job in a new occupation, or if there was a substantial break between the end of your last job and your new search.
If these conditions are met, you are permitted to deduct the cost of preparing and mailing copies of your resume to prospective employers, as well as any phone and fax expenses connected to your job search. Payments for placing ads in newspapers, in trade publications, or online are also potentially deductible.
In addition, you can deduct any employment and outplacement agency fees you paid for out of pocket while looking for a new job. The cost of other professional services, such as career counseling or resume preparation advice, may also be deductible. If, in a later tax year, your employer reimburses you for agency fees, you are required to include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.
If you take a trip to a certain destination with the primary purpose of looking for a job or attending a job interview, you can generally deduct the cost of traveling to and from the location. If you cannot deduct the travel expenses because the primary purpose of the trip is personal, you may still be able to deduct the amount you spend while looking for a new job during your stay in the area. When calculating your driving expenses, you can deduct actual expenses or use the standard mileage rate. For 2016, the rate for business use of a vehicle is 54 cents per mile.
Keep in mind that only job search expenses exceeding 2% of your adjusted gross income (AGI) are tax deductible, and you must itemize your deductions to take advantage of these tax breaks. Be sure to save all receipts, as they may be needed as proof of the expenses claimed. For more details on job search deductions, see IRS Publication 529.
If you find a new job that requires you to relocate, you may be able to deduct some of your moving expenses that are not reimbursed by your employer, provided you are able to satisfy two IRS tests. To meet the requirements of the “distance test,” your new workplace must be at least 50 miles farther from your old home than your former job location was from your old home. If you had no previous workplace, the location of your new job must be at least 50 miles from your old home.
To meet the requirements of the “time test,” employees claiming the moving expenses deduction must work full-time for at least 39 weeks during the 12 months immediately after starting a new job. Those who are self-employed must work full-time for at least 39 weeks during the first 12 months, and for a total of at least 78 weeks during the first 24 months after starting a new job.
Deductible moving expenses include the cost of packing and shipping your household goods and personal possessions, as well as insurance and up to 30 days of storage; the cost of traveling to your new home one time, including lodging but not meals; and charges for disconnecting and connecting utilities. If you use your own car for the move, you may claim the actual expenses for gas and oil, as well as parking and tolls, or you may use the standard mileage rate to calculate your deduction, which is 19 cents for moving expenses in 2016. The costs associated with buying and selling a home, or paying a security deposit on a rental unit, are not deductible.
Unlike job search tax breaks, the deduction for moving expenses can be claimed even by taxpayers who do not itemize and by first-time job seekers. You may also claim the deduction if you move prior to having a new job lined up, but start work after changing locations. For married couples filing jointly, only one spouse is required to meet both tests to qualify for the deduction. For more information on qualifying to deduct moving expenses, see IRS Publication 521.
Whether you are searching for a new job or relocating to take advantage of a new job opportunity, find out if you qualify for these valuable tax breaks. For more information, consult your tax professional.
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