UNCLE SAM HELPS PAY YOUR FEES
(May/June 2005 Issue)

Give Your Prospect a 25 per cent Rebate and Still Collect Your Full Fee. "The fee for your program is $4,450," you say. Their eyes glaze over. Sticker shock? It happens. Yes, your prospect knew s/he needed help, but thousands and thousands of dollars? Yipes. They might not be prepared for that.

There are two ways you can help clients over sticker shock. The first is setting up Small-By-Comparison; the second (for American clients) is to let Uncle Sam pay a big chunk of the fee. When someone says, "Wow, that’s a lot." You can say, "I understand how you feel; and may I ask, ‘a lot’ compared to what?"

Let’s start with an MBA. A couple semester courses at a 2nd tier MBA program will set you back $5000 or more. And that’s with no tutoring, just a few hours a week listening to a professor lecture you as one of 20+ students in the class, grade homework, and read some case studies – all theoretical stuff. By comparison, your career advancement program addresses the whole reason they spent #30,000 to begin with: the one that will make that MBA finally pay off with a good job!

Compared to what?
And then there is the laundry list of things that keep them from paying you. They’re paying as much or more for:
Student Loans, New Car, Trip to Vegas, Bailing their kid out of jail, Their psychotherapist, Lawn care service and swimming pool cleaners, Tennis lessons, Dog food, Cat food and cat litter ($4000+ over a cat’s lifetime!) Candy and Cigarettes (yes some people still smoke).

But just where do they get the money for all these goodies? The exact place you’re telling them to make a $2000 - $5000 investment. Their career! My book The Twelve Biggest Mistakes Job Hunters and Career Changers Make and How to Avoid Them has several comparisons listed in "Mistake #8: Doing It Alone." It compares the cost of investing in professional help to other investments we make.

What you put in:
Car: $25,000
$15,000-30,000 purchase
$7,500/year gas, maintenance costs (Paid for by career.)

What you get back:
Forty-eight months’ transportation. Then you need to buy a new one.

What you put in:
Vacation: $2,500 (Paid for by career.)

What you get back:
Two weeks getaway [from the (lousy) job you must go to the other fifty weeks].

What you put in:
Insurance: $5,000 or more a year---auto insurance, life insurance, property insurance, disability insurance, health insurance (even if your employer pays the bill, it’s still your earnings) (Paid for by career.)

What you get back:
Peace of mind, but no money [unless you are hospitalized, dead, your house burns to the ground, or your car smashes into a school bus.]

What you put in:
Toys and luxuries: $Thousands
hobbies, Ferrari/Jeep/SUV, fur coat
(Paid for by career.)

What you get back:
Some "Fun Fun Fun till her daddy takes the T-Bird away."

What you put in:
Dog or cat: $3,000 over its lifetime [for food, vet bills, licenses, flea baths, grooming, cremation/burial. Cat food and litter alone is $3600!] (Paid for by career.)

What you get back:
Companionship (of a kind)

Now, compare those with a...Career Investment and notice the Career-Investment Payoff

What you put in:
$100 - $200/hr or $3000-$5,000 fee for an expert to help you get and win interviews for the right jobs.
FREE. (Paid for by increased earnings and shorter job search.)

What you get back:
10 percent higher earnings for a lifetime ($100,000-$1,000,000). Higher satisfaction; 20-60 percent less unemployed time in job search ($3,000-$35,000).

Now that we’ve established that your career is worth at least what you spend on cat litter, which Uncle Sam does not care to help you pay for, here’s how to make it an even better deal by getting Uncle Sam to pay for a big chunk of your career program.

The technical tax deduction information is below. Before we get to it, though, we need to clarify an IRS stipulation. Uncle Sam likes it when you’re employed because he collects taxes. When you’re unemployed, he gets zippo income tax! And, he likes you to make as much money as possible because the more you make, the more he makes. So, he’s willing to make most of your job hunting expenses tax-free. One problem. He won’t pay you to change careers because that usually means you make less money (so does he). If you’re a bus driver, he won’t help you become a computer programmer. But that’s a lot of what we do, eh? Help people change careers, right? How can our clients still qualify for the tax break? Well, there are two ways. The tax code says that fees paid to employment agencies are deductible whether or not they result in a new job. So they’re deductible whether you’re successful or unsuccessful. Let’s say you have a very outgoing bus driver and you help the fellow get employed in a sales job. So you are successful, and since you are a career counselor, he can claim that you did not really change careers. You identified the skills you were using in one job and found a way to use those same skills in a new job. Hence you didn’t change careers; you’re still doing the same outgoing people oriented skills you used before.

Will they allow that? It doesn’t matter. It passes the "laugh test," which is all you need. You see, if it’s plausible, then it has a good chance of working; the worst that happens is you get a little slap on the hand and maybe they charge you the taxes after all. Since getting audited is less than a 1 per cent chance, and since if you are audited, this is not hiding income or fraud, but just an interpretation of the rules, there’s nothing to lose. But watch… here comes the clever part--and I actually had a client who used this and won. If the IRS says, "no, your fee to that career counseling did not help you advance your career in your current profession. Then they’re saying, "it failed." Well… the tax code says the fee is deductible whether they’re successful or unsuccessful! Voila… they were unsuccessful at making you a better bus driver, and they "failed" by letting you take a sales job – therefore the fees are still deductible. It worked for my client Murray; even if it didn’t for you, it still passes the "laugh test" so you’ve got nothing to lose. Back to our Sticker Shock client who spends $3600 on cat litter and cat food but is balking at your $4450 fee. "Remember," you say. "Uncle Sam will pay for a big chunk of this – roughly 28% of everything over $800, (or whatever 2% of their Adjusted Gross income, AGI, is). So on April 15th, instead of a, say, $5000 tax bill, you’ll only have a $3500 tax bill; or instead of a $3000 refund, you’ll get a $4500 refund. I recommend you have a "tax deductibility" sheet you hand out to clients so the point becomes real to them. If you want a copy of my handout, e-mail me.

Here are the current rules:
The tax man is on your side when you're job hunting. Search expenses are deductible as long as you are looking for a new position in your current field -- even if you're still working. Job hunters may be eligible for can take the following deductions: travel expenses, employment-agency fees, resume-preparation fees career-counseling expenses (which, by the way, are technically classified as "employment agencies" – I know and you know we’re not… but that’s what the IRS thinks we are as long as we’re part of someone’s job search or career advancement.) the cost of advertising your services, newspapers and other periodicals purchased for their help-wanted ads and legal fees paid to an attorney to review an employment contract.

Moving costs can be taken as tax deductions whether or not a job seeker itemizes; they are reported on line 29 of Form 1040. To take advantage of these deductions, (except moving) you need to itemize, rather than take the standard deduction. Job-hunting expenses are reported as miscellaneous itemized deductions on line 20 of Schedule A. And you can take them if the total of your miscellaneous deductions exceed 2% of your adjusted gross income. In other words, taxpayers with adjusted gross incomes of $50,000 can deduct job search and all other miscellaneous expenses exceeding $1,000 (2% of $50,000). This applies whether you file as a single or file jointly with your spouse. If such a taxpayer spent $1,500 to land a job last year, he or she could deduct $500. It's important to keep good records. For instance, by scrupulous tracking the time you spend online to job hunt, you can deduct that percentage of your online hook-up and Internet access fees. Ditto for your home phone or cellular phone. It all adds up on Line 20. Whatever percentage you use of anything you use for job hunting can be deducted. However the record of the expenses need to be made within 24 hours of the event. So if you jot down the job search nature right on the back of any receipt you get, you’re covered. If you use the internet all day Tuesday looking for work, you need to note that and claim $1/30th of your internet bill within 24 hours of usage. Can you go back and make it up later? You could, but if you want to be Audit Proof – a good goal! – then you’ll "record as you go," and not save it up.

Travel Expenses
Unreimbursed travel costs to meet with employers are among the most costly job-search expenses. In many cases, these are deductible, but "travel is the thorniest point of contention" with the Internal Revenue Service (IRS). That's because the IRS allows taxpayers to deduct the cost to travel to interviews only if the main purpose of the trip is to meet with an employer and secure a job. In other words, if you fly to Boston to interview with one or two companies, stay overnight in a hotel, have breakfast with a recruiter in the morning and then fly home, all the costs associated with your trip are deductible. That includes airfare, the hotel bill and 50% of the cost of your meals. However, if you visit Hawaii on vacation, decide you want to live in Honolulu and arrange a job interview while there, you can't deduct those expenses because the main purpose of the trip is vacationing. It's possible you could deduct the cost of using a rental car to travel to the actual interview if the rental was strictly for the purpose of getting to the interview, but you can't write off the flight or your meals. No matter what you eventually choose to deduct, it will all be disallowed unless you can show receipts (not just a monthly credit card statement) for your expenses, including a mileage log for the car with start/finish odometer readings, date, and purpose of the trip.

What Else Doesn't Qualify?
New clothes to wear to interviews aren't deductible. Nor are your dry-cleaning bills between interviews. The IRS allows taxpayers to deduct only the cost of work uniforms that aren't suitable for any other
purpose. Other items that have to be worn as a condition of employment also are legitimate expenses. If you've had a substantial break between your last job and your current job search, job-hunting expenses cannot be deducted. This is because the I.R.S. considers them as a business expense, and if you've been out of work for a long time, you're technically not in business at the moment. Alas, the Internal Revenue Service doesn't provide clear guidance on the length of time that you'd have to be unemployed before you aren't allowed to take these deductions, so TAKE them. Again, since It’s not fraud, just an interpretation of the rules, the worst you’ll get is the slap on the hand and pay the tax.

About to graduate? Most first-time job-hunting expenses aren't deductible. However, if you secured an internship and then sought a full-time position in the same field, expenses related to your search are deductible. Again, you would have to itemize expenses on your tax returns and only those job-search costs exceeding 2% of your adjusted gross income (probably a small number in this case, eh?) would qualify.

Moving Expenses. Job hunters who move because of a new job can deduct moving expenses that they pay out of their pockets. To qualify for this deduction, your new job must be at least 50 miles farther from your home than your old job was. If your old job was three miles from your home, your new job must be at least 53 miles from your home. You also must work at the new location for at least 39 weeks during the 12 months after you move to get the deduction. The good news is that there's no cap on moving deductions. Moving expenses are reported on line 29 of Form 1040. Trips back and forth to scout out a new area cannot be itemized. So any trips to a new location to look for a home or open a bank account aren't deductible.
Review IRS Publication 521 -- Moving Expenses -- for more detail.

So, there you have it. Your program costs less than cat food and litter, and Uncle Sam will pay for about 28 per cent of everything over 2 per cent AGI (net… about $667.50 on a $4000 contract). How can they refuse? If you’re not using The Twelve Biggest Mistakes Job Hunters and Career Changers Make and How to Avoid Them in your sales process, you’re missing a big selling tool. I allow people to print and "private label" the booklet. So e-mail me to get your copy and permission.

Jack Chapman is author of:
Negotiating Your Salary: How to Make $1000 a Minute
He is a career consultant in private practice and runs ongoing support and training teleconference sessions for career consultants in private practice.
He can be reached at 847-251-4727 or jkchapman@aol.com