There are numerous tax deductions (often called "tax write-offs" or "tax breaks") available for members of the workforce, even those who may be currently unemployed. This article is a cursory look at what the experts say are the most overlooked ones.
Moving Expenses Tax Deductions
Unreimbursed costs of moving and storing household goods as well as most travel expenses for the taxpayer and family members are deductible. Moving expenses are treated as an adjustment (subtraction) to gross income, which reduces the amount of taxable income.
A primary rule is that the distance between the new job location and the former house must be at least 50 miles more than the distance between the old job location and the former house. Taxpayers who move to work at their first job can also claim moving deductions. Home buying or selling costs, meals, temporary living expenses, and house-hunting expenses are not deductible.
Deductions Requiring the Form 1040’s Schedule A and Subject to the 2% Limit
Most of the frequently overlooked job-expense deductions can be claimed only if the taxpayer is able to itemize his or her deductions, as opposed to claiming the standard deduction on the Form 1040. Most are also subject to the 2% limitation of the taxpayer’s AGI (adjusted gross income). In other words, only the costs that exceed 2% of the AGI are deductible. There are also limits to what can be deducted if a taxpayer’s income exceeds certain thresholds.
Job-Seeking Expenses. A taxpayer can claim job-seeking expenses only when looking for a new job in the same occupation. They can be deducted even if the search is unsuccessful. Resume costs (including mailing costs), employment agency fees, and travel expenses (if the trips were primarily made to job hunt) are deductible. Deductions cannot be claimed if there was a substantial break before the ending of the last job and looking for a new one. Those seeking their first job cannot claim any job-search deductions.
Business Travel. Unreimbursed costs in this category are especially subject to a lot of restrictions and limits, and can be tricky and complicated. But basically transportation (trains, planes, taxis, buses, etc.), meals, lodging, baggage costs, and even cleaning and laundry bills, are deductible to varying extents. However, if the expenses are for those incurred on what the IRS calls an “indefinite work assignment,” that is, working a job away from home for more than a year, the expenses are not deductible.
Education. Work-related education is deductible if it maintains or improves job skills, and is required by law, government regulation, or the employer. Education costs are not deductible if they are incurred to help return to a job, meet minimal job requirements, or qualify for a new job. Travel costs that serve to educate, as in a language teacher who goes abroad to improve language skills, are not deductible.
Clothing/Safety Items. Uniforms and work clothes not suitable for street wear and their upkeep are generally deductible. A few examples of what can be claimed are items worn by firefighters, health care workers, law enforcement officers, and professional athletes. Safety items like shoes or glasses are also deductible. Active duty military may not deduct the costs of their uniforms, but reservists can if regulations prohibit wearing them except while on duty. The white clothing painters wear is not deductible, nor are a welder’s blue clothes.
Business Gifts. Gifts up to a $25 value per person per tax year are deductible.
Dues. Union dues are deductible, as are those for membership in professional organizations. Deducting dues for professional organizations requires that the membership helps job performance. Deductions for any dues supporting lobbying and political activities are generally not allowed.
Cell Phones and Computers. The taxpayer can claim depreciation for cell phones and computers used during regular working hours if the job requires them.
Subscriptions. Work-related professional journals and trade magazines are deductible.
Tools. The cost of small tools can be deducted if not expected to last more than a year. Costs of tools expected to last longer are can be recovered through other depreciation methods.
Work Expenses of the Disabled. Physically or mentally impaired workers can deduct expenses for devices necessary for them to be able to work. A typical example would be a reader for a sight-impaired employee. While these expenses must be itemized on a Schedule A, they are not subject to the 2% limitation.
Schedule A has a very long list of overlooked deductions that go beyond work-related issues and apply to its other sections - such as state and local taxes, mortgage interest, charitable work, and medical costs. Taxpayers who itemize should be their own best advocate and research the various categories. Not every tax preparer takes the time to ask questions about the multitude of possible itemized deductions, especially during the height of tax season.
Reservist Travel – An Adjustment to Income
Military reservists or National Guard personnel who travel more than 100 miles from home for meetings or drills can deduct the cost of mileage, lodging, meals, incidental expenses up to the amount the federal employees are paid for travel (i.e., per diem). These expenses are treated as an income adjustment, rather than an itemized deduction (a better tax deal). Any balance would have to be itemized on a Schedule A.
Bottom Line Reminders for Taking Deductions
Any work-related deduction claimed on the Federal Income Tax Form 1040 has to be an out-of-pocket expense for which there has been no employer reimbursement. Documentation of expenses is also required in case of an audit.
Taxpayers who feel that any of these deductions may apply to them should further research their rules, restrictions, and exceptions by making a visit to the Internal Revenue Service (IRS) website or a knowledgeable tax preparer.
Sources:
J. K. Lasser Institute. Your Income Tax 2010. New York: John Wiley and Sons, Inc., 2009.
Tax Partners and Professionals of Ernst & Young LLP. The Ernst and Young Tax Guide 2007, 22nd Ed., Peter Bernstein, Editor. New York: CDS Books, 2006.
Thompson Reuters. Quickfinder Handbook: Form 1040 2008 Tax Year. Ft. Worth, Texas: Thompson Reuters, 2008.
Barbara Jezior - My career paths include Research Psychologist, Technical Writer/Editor, Food Expert, and Professional Tax Preparer.
