Are Job Search Expenses Tax Deductible?
Spoiler alert: yes!
Deducting Job Search Expenses on Your Taxes
The deductibility of job search expenses is a strong part of the tax code which can help reduce and mitigate taxes due both on the federal and state levels.
Job Search Expenses
Job Search expenses are fully deductible as a direct expense on IRS Schedule C without any specific monetary limitation. Job searching can be considered part of securing self employment. This schedule is utilized to report ALL self employment whether formally hired as an independent contractor, known as a 1099, or not) as well as any other ancillary income (ie. selling something on Ebay, any side hustle etc.) regardless of how much or how little business income is earned. No formal LLC is required to file the schedule C and this schedule can also report a loss which would further reduce your adjustable gross income. Under IRC §162, taxpayers can deduct all “ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business".
To be deductible on Schedule C, the expenses must:
- Be directly connected to the current business or profession.
- Be ordinary and necessary in the context of the specific trade.
- Not represent startup costs for a new business or an entirely different line of work (which can be deducted separately as shown in the next paragraph below).
This means that you, as an ordinary job seeker with Schedule C income can deduct all job search expenses such as hiring a career coach, reverse recruiter, resume writer, paying for LinkedIn premium, buying a webcam or paying for premium job boards such as iHire or ExecThreads. This also means that a freelancer or consultant searching for new clients, contracts, or projects in their existing line of business may deduct related marketing, networking, travel, or proposal-writing costs.
Examples of Job Search Expenses Which Are Deductible
- Reverse recruiting services
- Travel to interviews
- Coffee and meal costs for networking
- LinkedIn Premium
- New webcam, ring light or camera costs
- Resume writing services
- Career coaching services
- Premium job boards [such as ExecThread, iHire, The Ladders]
Startup Costs - A Different Approach to Deductions
If job search expenses are determined to relate to entering a new trade or business, they may be considered startup costs under IRC §195. In such cases, the taxpayer may elect to deduct up to $5,000 of startup expenses in the year the business becomes active (with the remainder amortized over 15 years).
Documentation
Taxpayers claiming job search-related expenses on Schedule C should maintain careful documentation. This includes emails, contracts, receipts, travel logs, correspondence, contracts, and evidence that the activity was conducted in the same trade or business.
Unemployment
Job seekers can also utilize reverse recruiting services to justify and substantiate their active job searching activity when filing for and maintaining unemployment claims.
Conclusion
In conclusion, this part of the tax code should definitely be utilized and maximized to save the tax payer money.
Scott Rifkin, a tax accountant with nearly 30 years of experience serving clients, is happy to discuss in further depth this piece as well as review up to three years of prior returns to check if a material refund might be due and to ensure you are taking all deductions and credits that pertain to your tax situation. Scott's goal for himself and all of his clients is to pay the least amount of taxes as required by the respective federal and state tax codes.
Scott can be reached at srifkintaxes@gmail.com or by phone at 917-653-5779.
