Your job hunt may be tax-deductible

February 9, 2011: 1:39 PM ET

Unemployed job seekers are entitled to some tax breaks, but most people have only a hazy idea of what they are.

By Anne Fisher, contributor

Let's say you're out of work and buy new clothes -- and, while you're at it, get a new haircut -- for job interviews. Then suppose you use your home office as a base, and travel to meet with prospective employers. In the evenings, you're taking classes to learn new marketable skills outside your current field. It's all tax-deductible, right?

Actually, no. Uncle Sam will foot the bill for your travel expenses, but the clothes, the haircut, the office, and the classes are on you.

If you didn't know that, you have plenty of company. A new survey by online tax preparation service CompleteTax.com quizzed more than 1,000 adults and found that, with April 15 fast approaching, fewer than half could correctly answer basic questions about which job-hunting expenses they can write off.

The cost of printing and mailing resumes is tax-deductible, for instance, as are fees charged by outplacement services, yet most people didn't know about either tax break. Likewise, about 40% of those polled were not aware that severance pay and unemployment benefits are taxable.

Almost half (44%) incorrectly believed that being out of work entitled them to write off the cost of health insurance (if only!), and more than one-third were under the impression -- sadly mistaken -- that unemployment automatically lets them withdraw funds from a retirement account penalty-free.

A widespread misconception that could add up to big penalties later: 40% said that anyone who is unemployed is exempt from filing a tax return at all.

A word to the wise: If you're not sure what's deductible and what's not, ask a tax professional. It's an added expense at a time when you may already be pinching pennies, but the fee you pay a tax preparer is tax-deductible and could spare you an even bigger tax bill down the road.

You might also sleep better, which never hurts. Uncertainty about whether you're making costly mistakes "just adds to the stress," notes Gary Lundberg, product management director for CompleteTax. "Being out of work is stressful enough." Too true.

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About This Author
Anne Fisher
Anne Fisher
Contributor, Fortune

Anne Fisher has been writing "Ask Annie," a column on careers, for Fortune since 1996, helping readers navigate booms, recessions, changing industries, and changing ideas about what's appropriate in the workplace (and beyond). Anne is the author of two books, Wall Street Women (Knopf, 1990) and If My Career's on the Fast Track, Where Do I Get a Road Map? (William Morrow, 2001).

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