As if those who are unemployed didn’t have enough on their minds worrying about their work situation, along comes tax season. With less than one month to the April 15 due date, it’s time to make sure any expenses that have been part of your job search process get listed.
It’s important to understand that eligibility for deductions is based on whether you have been looking for work in your existing field. The IRS qualifies this as a position in your current or most recent industry and at a similar level of responsibility. If you are attempting to switch careers or break into a new line of work, tax breaks are not applicable. They also do not hold for recent graduates (first job out of school) or those who’ve taken extended breaks in their employment for several years.
What can you deduct?
• Resume preparation services
• Printing or postage costs for cover letters and hard copy resumes
• Resume distribution services—companies that send out your resume on your behalf
• Travel expenses if you’ve been job hunting in other cities (mileage, transportation, lodging)
• Fees associated with placement firms
• Career counseling and outplacement costs
• Local and long-distance calls to prospective employers
• Membership fees for job search websites
Keep in mind that your job hunting expenses must be itemized and the total amount must exceed 2 percent of your adjusted gross income. You can only deduct the amount over the 2 percent. So, if your 2009 adjusted gross income was $50,000, you can only deduct expenses exceeding $1,000 (2 percent of $50,000). A recent survey by The Tax Institute at H&R Block showed that 40 percent of taxpayers are confused about what they are able to deduct; in fact, 17 percent mistakenly believe that they are able to deduct wardrobe purchases for interviewing attire. (This “no” also holds true for haircuts, manicures or other personal maintenance costs.)
If you relocate because you’ve landed a new position, you can deduct your qualified moving expenses without itemizing. The new job must be at least 50 miles farther away than the previous residence was from the old job and taxpayers must remain at the new location at least 39 weeks.
The Tax Institute at H&R Block survey also reported that 73 percent of taxpayers didn’t know if or to what extent unemployment benefits are taxable. The 2009 Recovery Act exempts the first $2,400 of unemployment benefits received from federal taxes; however, unemployment benefits over that amount are taxable. This means if you received $5,000 in unemployment, you will be taxed on $2,600 of this amount. Congress passed legislation that added an extra $25 to unemployment checks and also provided a 65 percent COBRA subsidy for those who qualify. This subsidy is tax-free for those with individual adjusted gross incomes of $125,000 or less ($250,000 for joint filers). As with any IRS tax deduction, make sure you have documented receipts to back up all of your paperwork.
Other tax-related considerations you should think about include:
• Early withdrawals from a 401K, pension plan or an IRA. You may face a penalty so check with an accountant regarding exceptions.
• Severance packages and voluntary buyout packages are treated as earned income. This may be taxable at a flat rate and/or may actually up your tax bracket.
• The Savers Credit is an overlooked and often under-utilized tax break which rewards low and moderate income taxpayers for contributing to an IRA, 401K or other qualified retirement plan.
The Tax Institute’s survey showed that a sure sign of the times is how taxpayers feel about losing their job. Fifty-six percent ranked it as having the most impact on taxes—even higher than having kids (22 percent), getting married (9 percent) or getting divorced (8 percent).
Nancy Schuman is a vice president at Lloyd Staffing, headquartered in Melville, and is the author of eight how-to books on career guidance and job-search techniques. Lloyd Staffing offers temporary, contract and full-time employment services on a regional and national basis. Send your career-related questions to email@example.com.