Starting a new job can be exciting, but the process of job hunting and moving to a new location can be expensive. Luckily, the IRS gives taxpayers the ability to deduct the cost of moving and the other expenses associated with looking for a new job.
Deductible Job Search Expenses
With the uncertainties of the present-day economy, taxpayers often find themselves looking for new jobs or replacing lost jobs. The process can be time consuming and requires up front expenditures that are not easy to absorb. Current tax law alleviates some of this burden by allowing taxpayers to deduct certain job hunting expenses. It is important to note that the job must be in the same line of work as the previous job. By definition, this limitation disqualifies first time job seekers. As a result, expenses incurred to develop new qualifications or skills for a different occupation are also non-deductible.
Assuming the taxpayer searches for a job in the same line of work, he or she can deduct a wide variety of expenses. These expenses are deducted as itemized deductions on the taxpayer’s income tax return (subject to the 2% of AGI threshold on miscellaneous itemized deductions). Allowable deductions include, but are not limited to, the following:
- The cost of preparing and sending resumes
- Travel expenses such as traveling to interviews
- Some job placement agency fees
- Legal and regulatory fees and licenses in your current field of work
It is important to remember that any reimbursed expenses are not deductible.
Oftentimes, taxpayers must move to a new location as a condition of accepting a new job offer. The primary question asked is, “what can be deducted?”
In general, the moving expense deduction is limited to the cost of: (1) moving household goods and personal effects from the former residence to the new residence, and (2) traveling from the old place of residence to the new one. Expenses incurred to relocate household members are also deductible.
The deductibility of these expenses is subject to two tests: (1) the distance test and (2) the time test. The distance tests requires that the distance between the taxpayer’s new job and former home be at least 50 miles farther than the taxpayer’s previous job from that home. The time test requires that the taxpayer work full time for a minimum of 39 weeks during the 12 months immediately following arrival at the new location. The idea behind the distance test is to demonstrate that an actual move is a practical necessity to accepting the new job. The purpose of the time test is to prevent taxpayers from taking deductions for multiple part time jobs.
Assuming that the two tests are met, the taxpayer can deduct, in the year of the move, applicable moving expenses from their reportable income. The unique nature of the moving expense deduction is that it is an above the line adjustment to adjusted gross income. This means that the reported expenditures offset reportable income dollar for dollar. This results in a much stronger tax benefit to the taxpayer when compared to job hunt expenditures, which are deducted as itemized deductions. Itemized deductions are also often subject to limitations and can be phased out depending on the annual income of the taxpayer.
Anyone who has looked for a new job and/or has moved because of accepting a new position should consider looking into the deductions discussed above. There are serious tax benefits that can result from the appropriate application of these deductions. If you have questions about this topic, or would like help with any other tax matter, please call your L&B professional at (858) 558-9200.