Maximize Tax Deductions During Your Job Search or Move
Landing a new job can be a tough, expensive slog -- and so can just moving, but luckily the costs of both can be reduced on your tax bill. The Internal Revenue Service allows you to deduct many job-seeking costs, ranging from travel expenses for interviews to outplacement agency fees.
Bruce Mendelsohn, a former communications director for schools job-hunting in the Auburn, Massachusetts, area, often meets with people for coffee for job leads and plans to deduct expenses for gas, coffee and meals. "I am happy the government understands that people need help for both the short and long term," he said. "I take people to lunch or for coffee for 'informational' interviews. When you are looking for a job, it's about relationships and to see if there is a future partnership."
Similar to all miscellaneous itemized deductions, the total costs must be in excess of 2 percent of your annual gross income for you to receive any benefit, said David Walters, a certified public accountant and certified financial planner from Palisades Hudson Financial Group in Portland, Oregon. For example, in the case of a taxpayer earning $50,000 who spent $1,200 that year on job-seeking expenses, the first $1,000 would be limited, and the taxpayer would get the benefit for the $200 in deductions.
You can even deduct memberships to professional organizations, the costs of printing and sending resumes and networking events. For the costs to qualify, the job search must be in the same field as the prior job, Walters said. Another exception is that people looking for their first job do not qualify for this kind of deduction.
The Benefits Aren't Over Once You Snag the Job
If your new job requires that you relocate, and the company is at least 50 miles farther from your former home than the new job, the costs of moving your home and travel expenses qualify as deductions, too. One exception is that the IRS does not allow deductions for your meals while you are traveling to your new location.
Unlike job search expenses, the ones you rack up to move for a job are not subject to the 2 percent of adjusted gross income limitation, but the position must be full time. Recent college graduates looking for their first job can take the moving expense deduction.
Aside from tax deductions, people changing jobs may also want to consider a direct rollover of their 401(k) account from a prior employer to an IRA.
"Since many 401(k) plans have very limited investment options, rolling over an old 401(k) account to a well-known custodian can provide better, low-cost investment option," he said.