Tax Guru – Ker$tetter Letter

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What is a new profession?

Posted by taxguru on December 16, 2007

Q:

Subject: Tax deductioin question

 

I have a question about job hunting deductions. If one is a medical malpractice lawyer looking to go into becoming a tax lawyer, would these deductions be allowed? I know job hunting deductions are allowed is in the same field but I’m unsure as to the exact meaning of that phrase.

  

Thank you for your help!

A:

That is an interesting twist on the long standing Catch 22 regarding the deductibility of both job hunting and education costs.  I have always considered the inability to deduct costs associated with entering a new profession to be idiotic and counter productive for a society that needs its citizens to be able to adapt to new market opportunities, such as the shift from a blue collar manufacturing economy to one more dependent on white collar service jobs.  However, we do still have to deal with this ridiculous restriction on real life tax returns.

I don’t have time to do a lot of specific research on this exact point, but I have a pretty comfortable gut feeling of how it should turn out.

Normally, cases where IRS disallows these kinds of deductions hinge on the person crossing the hurdle to enter an entirely new profession, often signified by a license.  I have seen cases where IRS wouldn’t allow a paralegal to deduct costs to study for the bar exam because they consider being a licensed attorney to be completely different for tax purposes from a paralegal doing the exact same kinds of things.  Likewise, IRS has been tough on CPA candidates trying to deduct their costs to study for the CPA exam, even though those individuals were already working in a CPA office,

However once you have crossed the threshold into a licensed profession, I don’t recall ever noticing any IRS hostility towards allowing full deductions for the job hunting and educational costs associated with changing one’s specialized area of practice. Doctors, lawyers and CPAs can all deduct their costs with learning and working in new specialized areas that still require the use of their existing licenses.

While you should have your own personal professional tax advisor take a loser look at the exact kinds of things you are trying to deduct, in a general sense, I would feel comfortable deducting education and job hunting costs associated with any kind of legal practice that will require your being a licensed attorney, even if it is in a completely different area of law than you were previously involved with.

As I often do, I plan to post this on my blog and will share any comments form other tax practitioner who may have a different take on this question; as well as from anyone who may want to confirm my opinions on this matter.

I hope this is of some help to you.  Good luck in the fun are of tax law.

Kerry Kerstetter

 

 

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