Filed under: Personal Finance
From The Network Journal:
Many people fail to realize that they must pay taxes on unemployment benefits. For 2010 all unemployment benefits received will be considered taxable income. That is a big change from 2009 when a temporary exemption was granted for the first $2,400 received.
Some states withhold part of the unemployment benefit so recipients don't get socked with a big tax bill, but that's not a requirement, said Melissa Labant of the American Institute of CPA's tax team. That means you might be on the hook for taxes on the full amount of your benefits.
Fortunately, there's a host of deductions and tax credits that can help offset any tax you owe, or increase your refund.
Tax deductions:
- Job search
Certain expenses can be deducted if you're looking for a job in your most recent occupation.
That means similar job titles in different industries, like administrative assistant or customer service manager, would qualify. Costs for a search that enabled you to switch from being an elementary school gym teacher to a restaurant chef wouldn't make the cut.
Fees for resume preparation, job counseling and employment agencies may be claimed. And, if you kept a log of telephone calls, you may be able to claim a portion of your phone bill.
Also, the costs of travel to and from job interviews, both local and out-of-town, may qualify, so long as the trip was primarily for job-search purposes.
You can't, however, claim the cost of an interview suit or a pre-interview haircut or nail salon visit.
Taxpayers can deduct the job hunting expenses if the amount of all miscellaneous itemized deductions is more than 2 percent of their adjusted gross income. Scour your records to see if you had expenses that weren't reimbursed by your former employer, union dues, professional organization dues or fees for conferences or seminars. Together, these may help lift your deductions high enough to qualify. See IRS Publication 529,
"Miscellaneous Deductions."
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Are You an Unwitting Tax Cheat?
Did You Take the Right Charitable Donations Deductions?
It used to be that up to $250 in contributions could be claimed as a deduction without a receipt. However, starting in 2008, the IRS requires that filers provide receipts for all cash donations, even that $5 you gave to the Salvation Army bell ringer over the holidays.
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Are You an Unwitting Tax Cheat?
Did You Take the Right Charitable Donations Deductions?
It used to be that up to $250 in contributions could be claimed as a deduction without a receipt. However, starting in 2008, the IRS requires that filers provide receipts for all cash donations, even that $5 you gave to the Salvation Army bell ringer over the holidays.
Are You an Unwitting Tax Cheat?
Are You a Tax Cheat, Too?
"Our tax code is so complicated and convoluted that, in fact, it's easy to make a mistake on your tax return, just because you don't know what the law is," says Jeff Schnepper, a tax attorney in Cherry Hill, N.J.
Of course, ignorance is no excuse. If the IRS finds a mistake on your return you'll not only have to pay what you owe, but will be subject to interest and, possibly, penalties. And the responsibility for unpaid tax is yours, even if a professional prepared your return.
No matter who does your taxes, click through our gallery to see questions to ask before you sign on the dotted line.
Are You an Unwitting Tax Cheat?
Did You Report All Your Income?
Earned some extra cash from freelancing? Just because you didn't get a 1099 form (businesses aren't required to issue those if they paid you less than $600 in 2008) doesn't mean you're off the hook. Granted, the IRS won't know about that income -- that is, unless they audit the company or person who paid you. And don't forget any income you earned abroad. As a general rule, U.S. citizens are required to pay taxes on all of their income, regardless of where it was earned. If you paid taxes to the country where the income was earned, you may be able to claim a foreign tax credit. (For more information, read SmartMoney's story.)
Are You an Unwitting Tax Cheat?
Did You Take the Right Meals & Entertainment Deductions?
If you took a client out to dinner and discussed business immediately before, after or during your meal, then generally, 50% of the bill is tax-deductible. But you must have a receipt for expenses of $75 or more, containing the name of the restaurant, location, the amount paid, the person you were with and the business discussion that occurred. For expenses under $75, you don't need a receipt, but you must keep a diary with all of the above details.
Are You an Unwitting Tax Cheat?
Did You Take the Right Business Travel Deductions?
If you traveled within the U.S. for business, you may deduct 100% of the cost of getting and staying there (airfare, rental car or taxi, hotel). Personal expenses -- say, a ticket to a museum -- are not deductible. For international travel, you must generally allocate expenses based on the business and personal part of your trip, Luscombe explains. (For details, read SmartMoney's story.) If you use your car for business travel, you may deduct the costs associated with it, or take the standard mileage deduction. But you have to keep a diary, including the origin, destination, miles driven and the business purpose of the trip.
Are You an Unwitting Tax Cheat?
Did You Take the Right Home Office Deductions?
Just because you do a little work in your home doesn't mean you can take a home office deduction. In fact, most people don't qualify for this deduction because they need to use the space regularly and exclusively for business. If you use the home-office computer for personal matters, the home-office deduction is disallowed.
Are You an Unwitting Tax Cheat?
Did You Pay Taxes for a Household Employee?
If you paid that person more than $1,600 in 2008, you're supposed to pay the so-called Nanny Tax. Come tax time, the IRS should receive 15.3% of that person's annual wages in the form of Social Security and Medicare taxes. (Whether you decide to withhold half of that from your employee's salary or pay that yourself is your choice.) (Use SmartMoney's worksheet to determine the tax due.)
Are You an Unwitting Tax Cheat?
- Moving expenses
If you moved to a different city in order to start a new job, you may be able to claim your relocation costs, whether or not you've changed career fields.
The catch is that your new job has to be at least 50 miles farther away from your former home than your old job was.
So if you commuted 20 miles to reach your former employer, your new job would have to be at least 70 miles from your former residence in order for moving expenses to be deductible, explained Kathy Pickering, who heads H&R Block's Tax Institute.
If you can meet that requirement, Pickering said you can deduct the costs for moving yourself and your family. And this is an "above the line" deduction, which means you can use it whether or not you itemize.
Read the rest of 'Unemployed in 2010: Top Tax Tips' on The Network Journal.
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