If you or someone in your family is looking for a new job, you should be aware of the income tax deduction that may be available for job-search costs. Qualifying expenses are deductible even if they do not result in a new position being offered or accepted.

What are job-hunting expenses? Expenses of seeking new employment can encompass a broad range of items. Some of the more common expenses for which deductions have been allowed are:

... the cost of resumes, including postage for sending them to prospective employers;

... job counseling and referral fees;

... employment agency fees;

... telephone charges related to seeking new employment;

... local as well as out-of-town travel for interviews, to the extent not reimbursed by the prospective employer.

Nondeductible items include a loss incurred on forfeiture of a deposit for a home in an area where a new job was anticipated, and a real estate broker's commission on the sale of a home in connection with a move to a new job location.

For job-search expenses to be deductible, you must be looking for employment in the same trade or business in which you are engaged. For this purpose, a corporation's secretary-treasurer seeking a position as assistant to the vice president of finance at another corporation was seeking employment in the same trade or business. However, an artist seeking work in the business end of the art field was held to be looking for a job in a new trade or business. Moreover, IRS says any job in the private sector is a new trade or business for a retired military officer.

Accepting temporary employment in another line of work will not affect your deduction for expenses in searching for permanent employment in your regular line of work. However, job-hunting costs are not deductible if you are looking for a job in a new trade or business, even if you find employment as a result of the search.

First time job seekers. IRS says that job-hunting expenses incurred in seeking employment for the first time are not deductible. This rule can be tough on students and others entering the job market for the first time. Nevertheless, it may be possible to avoid the impact of this rule through an internship or other employment during the student's senior year. In addition to looking good on a resume, this type of work experience can be a trade or business in which the student is engaged (thus avoiding the first time job-seeking rule).

Reentry into job market. If an individual is temporarily unemployed, expenses of seeking employment in the field in which he or she was previously employed are deductible. However, IRS takes the position that if there is a substantial time break between earlier employment and the current search, you cannot deduct the expenses of looking for a job. Thus, if there has been a gap of several years since the last employment, for example, to take care of small children or to return to school to pursue post-graduate studies, the cost of seeking employment is not deductible.

Other limitations on deductibility. Deductible expenses in seeking employment are claimed as miscellaneous itemized deductions. As a result, individuals who take the standard deduction cannot claim such expenses. In addition, miscellaneous itemized deductions are deductible only to the extent that, in the aggregate, they exceed 2% of your adjusted gross income. Thus, unless your job hunting costs are large or you have other significant miscellaneous deductions, you may not be able to derive any tax benefit from these expenses.

We hope that this overview of the tax treatment of job search expenses is helpful. If you have any specific questions, or need additional information regarding this or other tax related matters, please feel free to contact our office thru the contacts page.

No penalty for early withdrawal of IRA funds to pay higher education expenses

I am writing to advise you of a particular tax benefit for people facing the prospect of paying ever-escalating college costs. The law lets individuals receive distributions from their IRAs (including Roth IRAs) to pay higher education expenses without incurring the 10% early withdrawal penalty that usually applies to withdrawals from an IRA before age 591/2 . (The regular income tax on the distribution still applies.)

The penalty-free withdrawal is available for “qualified higher education expenses,” meaning tuition at a post-secondary educational institution, as well as room and board, fees, books, supplies, and equipment required for enrollment or attendance. Expenses for graduate level courses are also covered.

The expenses can be incurred by the IRA owner, his or her spouse, or any child or grandchild of either spouse. There is no requirement that the child or grandchild be a dependent of the IRA owner.

This provision is just one of several aimed at easing the burden of paying the bills for higher education. If you have any questions about this or any of the other provisions, please do not hesitate to call.