Weekend Investor’s recent feature, “Write Off Your Job Hunt!” offers a tax guide for the unemployed. It has drawn much reader interest and a few questions.
For answers we turned to Douglas Stives, a professor at Monmouth University in West Long Branch, N.J. Stives was a full-time CPA for 36 years and still practices part-time in addition to teaching at Monmouth’s business school. He prides himself on making optimum use of tax deductions allowed by Uncle Sam, and last spring he was featured in a WSJ article dubbing him “The Most Tax-Efficient Man.”
Stives agrees with experts cited in the story that often a job hunter’s best hope for maximizing deductions is to set up a Schedule C sole proprietorship and look for part-time as well as full-time work, so that the same deductions work for both.
Like them, he also stresses that taxpayers must have some income to offset the deductions. “The good news is, you don’t have to have income in the first year, just in three out of five years,” says Stives. “It also helps if you can show that some of the future income was generated by your earlier expenses.”
Here are his answers to a few specific questions.
May I deduct $600 of legal fees incurred to review a severance agreement?
Not in a Schedule C business, says Stives, because the expense has nothing to do with future income. But he would argue that it is an unreimbursed business expense to the ex-employee, that qualifies as a miscellaneous deduction on Schedule A, “because it is connected with severance pay.”
May I deduct a cell phone used exclusively for job-hunting?
Yes, but . . . New IRS rules mean that business phones are deemed to be 75% for business use, with the rest personal use. The good news is no more logging of phone calls to determine business vs. personal use. The bad news, says Stives, is that “You’ll have a hard time convincing an IRS agent that a cell phone has 100% business use, even if it does.”
Please explain more about which unreimbursed travel costs are deductible.
The following rules apply for business travel within the U.S., Canada, Mexico, U.S. possessions, and some Caribbean islands, says Stives.
Travel costs are deductible if a majority of your total days are spent on business. Travel days—normally the first and last days of the trip—aren’t part of the computation. Taxpayers also don’t have to count weekend days if they don’t normally work weekends, says Stives.
How long is a business day? It depends, but Stives says at least four hours in many cases.
There are exceptions, however. Say someone flies to a distant area for an interview for a full-time job. The interview takes two hours, and that’s it for the day. Later the prospective employee hears he didn’t get the job, but the company says it might have contract work for him.
Says Stives, “The day was primarily for business, so I believe the travel costs would still be deductible on Schedule C.”
Corrections: Douglas Stives was a full-time CPA for 36 years. An earlier version of this blog post incorrectly stated that he was a CPA for 36 decades.