The alternative minimum tax or AMT is designed to make up for gaps in personal taxation and it can add quite a bit to your personal tax bill.

If you’re at risk of having to pay the alternative minimum tax, there are a number of steps you can take to reduce the amount you have to pay.

With some tax planning, you can reduce the size of the AMT bite. Since the AMT rules allow for fewer deductions, often eliminating the standard deduction, personal exemptions and other taxes, consider these tips to minimize your AMT tax bill.

How to Minimize AMT

  1. Maximize Retirement Contributions to Employer Plans. One of the most effective ways to minimize your alternative minimum tax is to contribute the maximum amount to employer retirement plans. If your employer offers a 401(k), a 403(b) or a 457 (b) plan, contribute as much as you can each year, up to the 401k limits. The amount you contribute is tax deferred and will reduce your taxable income for the year.
  2. Reduce AGI. Your adjusted gross income will impact the amount of your AMT. If you can reduce this adjusted gross income as much as possible, it reduces the possibility of having to pay the alternative minimum tax. If you are self-employed or a business owner, you have the opportunity to reduce your adjusted gross income substantially with various business deductions. For ideas to lower your AGI, see the list of AGI adjustments.
  3. Use Tax Efficient Funds or Tax-Exempt Bonds. If you are an investor, you need to put your money into securities and investments that will minimize your tax liability. When you invest in mutual funds, be sure to choose funds that are known for being tax efficient. If they generate large amounts of capital gains taxes and dividends, your AMT tax liability could increase. Another option to consider is putting money into municipal bonds, which are tax-exempt. These bonds are issued by municipalities such as school districts, city governments and airports. The interest you earn is not taxable.
  4. Claim Itemized Deductions Instead of the Standard Deduction. When you file your tax return, you have the choice of claiming a standard deduction or taking itemized deductions. Usually you should take the higher deduction, however, the standard deduction isn’t allowed under AMT. Therefore, taking itemized deductions gives you a chance to decrease your taxable income under AMT. While it may take a little bit more time to itemize your deductions, it can pay off by reducing the possibility of having to pay the alternative minimum tax.
  5. Make Additional Charitable Contributions. Another way that you could reduce your alternative minimum tax liability is to make additional charitable contributions. When you make contributions to a qualified charitable organization, you can deduct the amount of your contribution from your taxable income. For example, giving money to a church or a local charity will provide you with a deduction. When you make a charitable contribution, make sure that you get a statement or a receipt from the charity so that you can prove you made the donation. Donations of physical property are also deductible based on their fair market value as well.
  6. Claim Business Expenses on Schedule C. When you have business expenses to claim, consider putting them on Schedule C instead of on Schedule A of your tax return. By putting them on Schedule C, you reduce your adjusted gross income. This method also ensures that none of the deductions will be eliminated by the alternative minimum tax that you could otherwise have to pay on your income. For example, the AMT will eliminate real estate taxes on Schedule A. However, if they are a part of your business expenses on Schedule C, they will be allowed.

Regardless of your situation, you may have to pay at least something in the alternative minimum tax. You can see your AMT liability using the tax calculator. However, you can take the necessary steps to reduce this amount with a little bit of careful planning. Sit down at some point in the year and contemplate ways that you can implement some of these suggestions to limit your tax liability.

Tax loss harvesting can be an effective means of managing your taxes using your investment portfolio. While the practice should be managed with care, when done correctly, it can have a dramatic impact on your tax bill.

The timing of tax loss harvesting is a crucial element – there are various rules that must be understood and followed in order to get the benefit without creating additional problems.

What is Tax Loss Harvesting?

Tax loss harvesting is selling an investment near the end of the year in order to create a realized loss that can be used to offset any realized gains or ordinary income on your taxes. When you purchase an investment, such as a stock, and the price of that stock decreases, there is a loss.

Before the stock is sold, this loss is classified as an unrealized loss because the price of the stock may reverse, rising to ultimately create a gain. It is only after the stock is sold that the loss becomes realized and the loss may be used as an offset for other gains, having real tax consequences.

The practice of intentionally causing losses to become realized for the purposes of reducing taxes is called tax loss harvesting.

Why Should You Harvest Tax Losses?

Tax loss harvesting can be an effective practice if it is done carefully and within the proper overall context of the investment portfolio. While it is most commonly done at the end of the year as part of end of the year tax planning, tax loss harvesting can be accomplished at any time during the course of the year.

Your savings from tax loss harvesting will be based on your current tax bracket. You can see the impact that tax loss harvesting will have on your taxes using the tax calculator. Reduce your capital gains by the amount of the loss to see the difference in your expected tax due.

Don’t forget to make sure that the closing of the position is in keeping with the overall investment philosophy. For example, if you believe that the stock in question is on the verge of reversing, the lost profit that will result from selling the stock will more than offset the gain from the tax savings. Clearly this would not be a good choice, and yet it is one that may result if one attempts to harvest tax losses without care.

The Wash Sale Rule

One of the significant tax rules that you must be aware of is the wash sale rule. Under this rule, after a position is closed, it must remain closed for a minimum of 30 days in order for a new basis to be created. Prior to the introduction of this rule, you could simply sell a security at a loss and then quickly repurchase it as a new trade.

Now, if you repurchase the security within 30 days of selling it, the basis price used for calculating tax consequences reverts to the original price used. It is important to be aware that substituting a nearly identical security may not be sufficient to escape the wash sale rule. If the replacement security is essentially the same, the tax loss may be disallowed.

Loss Carryover

The other provision of the tax code that is important to understand is that in years in which a tax loss is substantial, there is a maximum allowable deduction: $3,000. If you exceed this amount, the capital loss may be carried forward into future years and used to offset future gains.

Our investment club just finished submitting all of our cost basis reporting to our broker, Scottrade. And to be honest, it wasn’t an easy task! Our treasurer spent hours on the task.

If you’re like me, you’ve gotten a flurry of cost basis reporting requests from your brokers via email. And it’s about time I actually calculate and submit all the information… I just wish it was going to be that easy.

Let’s take a look at what is going on with cost basis reporting, what the brokers have to do, and most importantly what we have to do to prepare for 2012.

Cost Basis Reporting Requirements

The Energy Improvement and Extension Act of 2008 law requires that brokers now have to report the adjusted cost basis for securities you sell to the IRS on Form 1099-B. In addition, they have to classify the sale as short or long term. Until now, brokers only had to show the proceeds from a sale of securities.

What is Cost Basis?

The cost basis is the amount you paid for the stock, plus any commissions and fees. When you sell a stock, the difference between your cost basis and your proceeds from the sale are taxable.

The information will obviously be helpful to complete our taxes in the future, but there will be some growing pains over the next few years since brokers only had to retain that information since January of 2009.

New Cost Basis Reporting Deadlines

Brokers will have to report cost basis amounts for securities bought on or after the following dates:

  • Stocks: January 1, 2011
  • Mutual funds and DRPs: January 1, 2012
  • All others: January 1, 2013

Brokers don’t have to report the basis for stocks you bought before 2011.

Cost Basis Methods

Going forward you can direct your broker on which method you want to use to calculate your cost basis. Brokers will have a default method of determining the cost basis. Unless you tell them differently, they’ll report the default method for any future sales. You can pick the method to apply to all transactions, or you can pick the method on a sale by sale basis.

Stocks. Many brokers, including Scottrade are using the first in first out (FIFO) method for stocks.

Mutual Funds. For mutual funds, you can average the basis of shares in an account; the averages will be separate for each account. In addition, beginning in 2012 you can use the average basis for one account, but not for another if you choose. If you previously used the double category method, you are no longer allowed to do so. If you want to use the average basis method, you should notify your broker in writing if it isn’t the default method they selected.

DRPs. For dividend reinvestment plans, you can average the basis for shares bought on or after January, 1, 2011, if “the written plan documents require that at least 10 percent of every dividend paid is reinvested in identical stock”. Fantastic. I can’t think of anything I’d rather do than spend time researching this requirement for each of my DRIPs.

In addition to FIFO and average cost methods, you’ll be able to select other cost basis methods based on the broker options. Some of the other cost basis methods include LIFO (last in first out), HIFO (highest in first out), low cost, minimum tax, maximum gain and specific lots.

What Do You Have to Do?

Since brokers don’t have to track the basis before 2011, that still falls on you. But brokers are going to ask you to provide that information to complete their records. In addition, many of the flurry of emails are asking you to select your cost basis method.

Do you have to provide the cost basis for stocks you already own to your broker? Well, I guess you don’t have to. But you’ll want to because when it comes time to file your taxes, you’ll want the gain (or loss) reported on your 1099-B to match the gain (or loss) you report on your Schedule D. Inconsistencies will be just like asking for a nice little visit from the IRS.

Do you have to select a cost basis method? While you can select a preferred cost basis method with your broker right now, you don’t have to do anything. Your broker will apply their default method and you are all set. This may not be the best choice from a tax standpoint, but at least you can cross it off your to do list.

Will there be a tax document delay? Probably. Because of the new reporting rules, brokers won’t have to give you your 1099-B until February 15 each year (it used to be January 31). If you’re used to working on your taxes right away, you might have to wait a little longer in the future if you had any stock sales.

Action Plan

All the countless hours I’ve spent wasting away making sure my Quicken data is exact down to the penny is finally paying off! Especially since some of our stocks were acquired years ago, with countless dividend reinvestments. It’ll be a pain, but at least I know I can put together the data to submit to our brokers.

I know there are many of you who are going to groan at the painful task of collecting all of this information. Feel free to commiserate about tracking down the cost basis of a 20 year old stock purchase with many subsequent reinvestments and additional share purchases in the comments!

The big news last year was about the Obama tax compromise revolving around the Payroll Tax Cut and the extension of the 2001 Bush Tax Cuts.

But the tax deal that was passed at the very end of the last Congress included an “AMT patch” to fix to the alternative minimum tax, or AMT for 2011. The AMT patch expired on December 31, 2011. See the potential 2013 IRS Tax Refund Delays caused by the expiration of the AMT patch.

Update: The Fiscal Cliff Deal will permanently fix the AMT in addition to creating the 2012 AMT patch. The AMT now has a permanent inflation index, so we won’t need the annual AMT patch.

What is the AMT?

The AMT was created in 1969 to ensure that the very wealthy paid an appropriate share of taxes. With so many strategies available for lowering your tax bill, the very rich (and smart) were finding ways to reduce their taxes to almost nothing.

Congress enacted the AMT so that these people had to pay a certain amount, regardless of the deductions and exemptions that would otherwise be available to them. The AMT tax gets rid of the standard tax brackets and instead applies a 26% tax rate to the first $175,000 and 28% after that.

The problem with the AMT is that it was not created with an inflation adjustment. So over time, the AMT stopped applying to just the very wealthy and started affecting middle class taxpayers. Each year, Congress has to pass an “AMT patch,” thus reducing the number of people who fall into AMT territory.

How the AMT Works

Technically every taxpayer must calculate their taxes under both the “normal” rules and the AMT rules. The AMT rules allow for fewer deductions – in fact, AMT payers cannot claim the standard deduction, personal exemptions or other taxes paid.

If you use tax software or employ a tax preparer, your taxes are calculated both ways even if you don’t know it, and you owe the higher of the two. But if you pay the AMT in some years and don’t pay it in others, you may be able to take a credit to get some of the AMT back.

AMT and the Tax Deal

As stated earlier, you owe the higher of “normal” income taxes or the AMT tax. But Congress has intervened to pass a special exemption in each of the last several years, referred to as the AMT patch.

AMT Exemption

Under the exemption, you do not owe AMT on the first $X of income, even if you otherwise would owe it. The current AMT exemption amounts are:

AMT Exemption Single Married Filing Joint
AMT Exemption 2010 $47,450 $72,450
AMT Exemption 2011 $48,450 $74,450
AMT Exemption 2012 $50,600 $78,750
AMT Exemption 2013 $51,900 $80,800

Of course some taxpayers will still have to pay the AMT. You can use the IRS AMT Assistant to see how the new exemption rules might affect you.

Be sure to stay tuned, we’ll cover ways to minimize your AMT liability – even if you’re too late for last year, tax planning for this year should already be under way!

More Tax Information

How much money do you have to make to file taxes? What is the minimum income to file taxes? Every year, those are familiar questions that I get. Let’s take a look at the requirements for the minimum income to file taxes in 2010.

2010 Minimum Income Requirements

For the 2010 tax year, you need to file taxes if your gross income meets the minimum income for your filing status and age:

Filing Status Minimum Gross Income (under 65) Minimum Gross Income (65+)
Single $9,350 $10,750
Head of Household $12,050 $13,450
Married Filing Jointly $18,700 $19,800 (one spouse)
$20,900 (both spouses)
Married Filing Separately $3,650 $3,650
Widow with Dependent Child $15,050 $16,150

This table does not apply to dependents. See When Do Kids Need to File Taxes? for minimum income to file taxes for children.

Social Security Income

Gross income doesn’t include social security benefits.

However, there is an exception to this rule if half of your social security benefits plus your other gross income is more than $25,000 ($32,000 if married filing jointly). Once that happens, you’ll need to file a 2010 tax return. Married filing separate also have different social security rules.

Other Income Sources

There are special rules for self employment earnings and church earnings. You must file taxes if your:

  • Self employment net earnings are greater than $400.
  • Church earnings are greater than $108.28 and are exempt from employer Social Security and Medicare.

If you earn enough money to file a tax return, you must file your tax return by the tax deadline.

Other Tax Filing Requirements

In addition to the income requirements, there are other circumstances when you must file a tax return. One example is if you sold your home. For all the requirements, see Publication 17.

For last years requirements you can see the minimum income to file taxes in 2009.

Optional Filing

Even if you are not required to file a tax return, you can choose to file one. You may want to file an optional tax return if you had any federal withholding or are entitled to tax credits, like the earned income tax credit, and want to get a refund.

Once you file, you can see How Long Does it Take to Get Your Tax Refund Back?

2010 Tax Calculator

If you are under the minimum income to file taxes, and are unsure whether or not filing your taxes will benefit you, use our 2010 Tax Calculator to compute your tax liability and refund.

Tax Filing Online

Now that you know how much money you have to make to file taxes, you can go ahead and file your taxes online right now for free with TurboTax!

Since the number of Roth IRA conversions per year is unlimited, and we have the ability to unconvert the Roth IRA conversions, there’s a fantastic strategy to Roth IRA conversions to minimize your taxes!

We previously explored roth conversion strategies like increasing your basis to avoid taxes, but if you’re ready to convert the taxable portion of your traditional IRA, this one might be for you!

Roth IRA Conversion Strategy

Here’s the plan to execute the Roth IRA conversion strategy:

Create multiple traditional IRAs. For example, if you have a $100,000 traditional IRA to convert, separate it into 4 $25,000 traditional IRAs.

Convert each IRA. For each account, make a traditional IRA conversion to a Roth IRA. You’ll want to keep each new Roth IRA separate.

Invest differently. In your new Roth IRAs, you’ll want to take a separate investment approach. Separating by each asset class would probably make the most sense and gives the most flexibility.

Monitor Returns. Since each Roth IRA holds a different asset class, the returns will vary. If the value goes up, leave it alone.

Recharacterize. Select the accounts where the value went down, which could be all, some, or none, of the new Roth IRAs. Reverse the conversions with a recharacterization by the tax deadline on April 15 (or by October 15 with an extension), for Roth IRA conversions.

Tax Savings. With this strategy you’ll avoid paying taxes on money you lost, without having to recharacterize the entire conversion, allowing you to keep the conversions on the winners!

Tips and Tricks

Reconvert. You can later reconvert the money that you recharacterized, but there is a waiting period of at least 30 days and at least until the next year. You’ll be able to reconvert at a lower value, which means lower taxes.

Rebalance and Consolidate. After you’re done converting, you can put the Roth IRAs back together for a more simplified record keeping.

Keep Good Records. The paperwork on this one could get very complicated if you take it to the extreme. Be sure to keep good records so you don’t make tax time next year a real headache!

Communicate Clearly. If you have multiple accounts, you’ll need to work closely with your broker to make sure the correct conversions and recharacterizations take place. I make Roth IRA conversions and recharacterizations at Vanguard.

More Helpful Roth IRA information:

Suffice it to say, over the past two years the IRS has made it more of a priority to recoup the money it is owed by individuals and businesses who are not truthfully reporting their earnings. And who can blame them? With the United States debt growing to over $12.5 trillion dollars, it seems only rational for them to continue this trend of coming after money that is owed.

So how is the IRS going about its debt collections?

Overseas Accounts

Based on US pop culture it is easy to think that every rich, James-Bond like American has an account in the Cayman Islands worth millions of dollars. Apparently the IRS has been watching these movies as well, as they are going after these accounts, which number in the tens of thousands. After some strong-arming from the U.S. government in 2009, several traditional countries where secret, tax-evading bank accounts are known to be kept (Switzerland, Liechtenstein and Luxembourg for example) are now going to cooperate more with the United States on identifying the accounts and making sure that the taxes owed on these accounts have been paid. Over 14,700 individuals voluntarily came forward with their overseas account information, and the IRS is currently investigating over 7,000 overseas accounts.  Also, in a settlement with the giant UBS Swiss bank, the US will be given 4,450 bank account names.

On top of that, the IRS is now expecting more information from individuals with overseas accounts. Individuals are now required to file a revised and stricter Foreign Bank Account Report by June 30 each year if the combined value of all foreign accounts in the previous calendar year exceeded $10,000. If you disclose that you have an overseas account, instead of reporting a vague range of money that is in that account, you now must include an exact dollar amount. Another new rule is that the full address of the bank where the account is held now must be disclosed. For more information on changes to this form, see the Anti-Deferral and Anti-Tax Avoidance information.

Hiring More Employees

The IRS is increasing their manpower in order to catch tax cheaters. In December of 2009, 100 new employees were hired in order to get a new “high wealth unit” within the IRS up and running. The high wealth unit will be focusing on trusts, real estate investments, privately held companies and other business entities controlled by rich individuals in the hopes that by looking holistically at a wealthy individual’s entire asset portfolio, they will find taxes that have not been paid.

Incentives to Snitch on Your Tax-Evading Friends, Family, and Bosses

The IRS paying people who tattle on tax cheaters with evidence is not a new concept, we discussed it previously when readers answered whether or not they report all their income; according to a Forbes article dated December 14th, 2009, from 2004-2005, 428 informants received a total of $12 million for their information that recouped the IRS $168 million. But in the new passing of the Tax Relief and Health Care Act in 2006 (effective 2008), the IRS upped the ante by paying between 15%-30% to people who tip-off tax cheaters for cases of $2 million plus. While no funds have yet been paid, many cases are in the works.

We all know that we must pay both income and social security taxes on employment income as well as any contract labor. But the IRS levies income taxes on some other sources of income too – some more surprising than others. If you received a windfall or other unexpected funds in 2010, chances are the IRS will view it as income. Read below for some of the most overlooked items.

Taxable Items

Generally speaking, the IRS taxes anything that leaves you in a better economic position than you were before you received it. Sometimes, like when you sell a house, the IRS has credits or deductions to eliminate all or part of the tax. Other times, you simply have to pay up. Prepare to open your wallet for:

  • Scholarships/financial aid: Scholarships and financial aid used for tuition or other required fees, books, or supplies are not taxable (and they must be subtracted from any tuition tax deductions). However any funds that are used for living expenses, travel, or expenses that are not required are considered income by the IRS and fully taxable. Students not enrolled in a degree program may have to pay taxes on all financial aid, even when spent on otherwise qualified expenses.
  • Debt settlement: If you find yourself unable to pay credit card or other debts, the lender may negotiate with you to pay a reduced amount. Any forgiven debt is subject to taxation and will be reported to the IRS if it is more than $600. If you have a negative net worth at the time of the settlement, the IRS may waive the tax liability. Until 2012, this does not apply to debt cancellation involving a principal residence mortgage. Taxpayers also do not owe taxes on any debts discharged through bankruptcy.
  • Gambling Winnings: If you hit the jackpot in Vegas or win the lottery, you will owe the IRS a nice chunk of change. This is one of the main reasons people might choose to take annual payments, when they’re an option, rather than a lump-sum payout.
  • Prizes: Along with lottery and other gambling winnings, you will have to pay taxes on any prizes you received, regardless of whether they were given in the form of cash. If your church or child’s school sold raffle tickets, and you win a car, you’ll have to pay taxes on the cash value of that car. Ditto for any game show or contest winnings.

Exceptions to the Rule

  • Gifts: If you received a gift from a friend, relative or perfect stranger, you do not have to pay taxes on it – but they might. However, be aware that any money exchanged between an employer and employee is considered compensation and therefore taxable income.
  • Fringe Benefits: To encourage employers to provide more benefits across the board, the IRS allows them to take a tax deduction for the value of many of those benefits, and also allows you to receive the benefits tax free. Tax-free benefits include things like your health insurance, childcare assistance, and access to gym facilities on the employers’ premises. But other benefits may be taxable, especially if they’re only offered to certain employees – your employer should notify you if you are affected.

In addition, Credit Card Rewards are generally not taxable.

If you’re looking for something specific that you don’t see on the list, feel free to ask about it in the comments. But as a general rule of thumb, the answer to your question is simple: if you had measurable economic gain, it’s probably taxable. Exceptions do exist, so check with your accountant or tax preparer if you’re really not sure!

Are you in line to receive a tax refund? Were you hoping to have received more of your hard earned money back into your bank account? As of 2010, there is an automatic way to invest your tax refund into government U.S. Series I Savings Bonds. This is a great way to increase your refund by earning interest, as well as a convenient way to ensure your money ends up working for you instead of being spent.

Bond Purchasing Limits

For all bond purchases automatically made with your tax refund, you must purchase US Savings bonds in multiples of $50, and the most you can request is $5,000 worth. The bonds will be issued in your name, unless you file a joint return, in which case the bonds will be issued in both you and your partners’ name. Please note that you cannot designate a beneficiary under this option.

Split Your Refund Deposits: Form 8888

As in previous tax years, you can choose to split your refund up into several accounts, including the following: savings account, checking account, a retirement fund, a health savings account, and/or a Coverdell education savings account by using Form 8888: Direct Deposit of Refund to More Than One Account. This year you can also choose to split your refund between these accounts and U.S. Series I Savings Bonds, or put your entire refund into purchasing these treasury bonds. Most likely you will need this form to do so (see below).

How to Purchase

If you are using your entire tax refund to purchase bonds, and it meets the criteria (at least $50, in multiples of $50, and no more than $5,000), then you do not need to fill out Form 8888. Instead, you would enter the information below on the appropriate lines on your tax return.

If, however, your tax refund needs to be split up, then you need to use Form 8888 to do so. For example, if your refund is $1,680, you could purchase $1,650 in bonds, but then would need to deposit the $30 into another financial institution, thus requiring the use of Form 8888.

You can use TurboTax to help you fill out the form. On Form 8888, fill in a dollar amount in line 1a, 2a, or 3a (depending on how many ways you are splitting your return deposit), the routing number(s) on line 1b, 2b, or 3b, and the account number(s) on line 1d, 2d, or 3d. Check whether or not each account is ‘checking’ or ‘savings’. For the line where you want to purchase the bonds, enter the dollar amount in line 1a, 2a, or 3a (remember the bond purchasing limits above when figuring out how much to put on these lines). For the routing number, enter the following: 043736881. Enter the word BONDS on line 1d, 2d, or 3d, and check the box ‘savings’.

You will receive the bonds in the mail. However, if you make a mistake, you will receive your refund as a check from the IRS instead.

Update: After the end of paper savings bonds, using your tax refund is currently the only way to purchase paper savings bonds.

Looking for unemployed tax deductions? You’re in luck, there are several tax deductions related to unemployment, job searching, or moving for a new job that will give you tax relief at a time when you probably need it most.

Unemployment reached 10% in the United States for 2009, sending over 16 million people home without their normal paychecks. Some politicians and statisticians argue that the number is actually higher than 10% because the way that the information is gathered on unemployed people means that some people who are technically unemployed are not counted at all, including people who have been unemployed so long that they have simply just stopped looking for a job, or people who are underemployed (i.e. working part-time, but want more hours).

Update: New for 2012, the IRS added additional Unemployed Tax Relief waiving the failure to pay penalties for six months for unemployed taxpayers.

Tax Exempt Unemployment Payments

Typically if you receive unemployment from the government, you have to pay income taxes on all of it. With the passing of the American Recovery and Reinvestment Act, the first $2,400 of any unemployment compensation you received in 2009 is not taxable.

Update: The $2400 exclusion expired in 2009, and was not included in the Obama Tax Cuts. Therefore, you cannot claim the exclusion on your 2010 or 2011 taxes.

In order to take this tax exemption, on the 1099-G form you receive from the government, subtract out $2400 from the amount in Box 1, and then report this new amount on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. You can file a 1040EZ online for free.

Note: You will not receive an unemployment W2 form, which is a common misconception.

Tax Deduction for Employment Search

You can deduct certain job search expenses so long as you are searching for a job in the same occupation, you itemize your taxes, and your miscellaneous itemized deduction write-offs (where you will be taking the job expense deductions) is greater than 2% of your adjusted gross income. If you are temporarily working in another field while looking for a job in the same occupation as before, then you can still take this tax deduction.

The following job search expenses are tax deductible: resume preparation, postage, copying fees, headhunter fees, meals while traveling (up to 50%), and mileage (for going to and from interviews, job counselors, etc.). These costs cannot be reimbursed by a potential employer.

Tax Deduction for Moving Expenses When Moving for a New Job

Did you move to take a new job? To qualify for the moving tax deduction, your new job must be at least 50 miles farther from your old home than your old job location was. Also, you must work at the new job for at least 39 weeks during the first 12 months after you move in the area of your new job.

If you qualify, you can deduct “reasonable” costs associated with your move, such as the cost of traveling from your old home to your new home, and the cost of moving your family members, including gas mileage, airfare, parking, tolls, etc. You can also deduct the cost of packing up your belongings and moving them, as well as connecting and disconnecting utilities, shipping your car and pets to your new home, the cost of storing your belongings within any period of 30 consecutive days after the day your things are moved from your former home and before they are delivered to your new home, and lodging while in-transit.