Important Tax Tips If You've Lost Your Job

Important Tax Tips If You've Lost Your Job

Help take the sting out of unemployment

Losing your job is never easy. It's bad enough you've lost your income but then you have to file your taxes, too. You're legally obligated to file and income tax return if you made more than a certain amount; in 2009 it was $9,350 for single taxpayers or $18,700 for married filers. Even if you made less than that, you should still fill out a tax return. You may get a larger refund than you would have gotten if you still had your job. Here are a few tips to remember when filing your income taxes if you've lost your job.

Job Hunting Expenses are Deductible

Keep track of every expense you incur while looking for your new job. This includes fees for updating your resume, time you rented on public computers for doing job searches, payments for career coaching or development courses, fees to employment agencies and mileage to and from interviews. You may also deduct your childcare expenses incurred while you are looking for work. Just make sure you keep all your receipts.

New clothes or accessories purchased to go on interviews are not tax deductible.

Check for Earned Income Tax Credit

If losing your job during the year made you earn much less than before, check to see if you qualify for the Earned Income Tax Credit. For tax year 2009, you qualified if you were a single person with no dependents and earned less than $13,440. If you're married or have kids, the maximum is higher.

Remove IRA Contributions

If you take money from your IRA or 401(k) account while you're unemployed, you are liable for taxes on the amount you withdrew since you deposited that money tax-free. You'll also be paying any penalties and taxes for early withdrawal. You can avoid some of those taxes and penalties by reversing any withdrawals you made during the tax year within 60 days of the initial withdrawal.

You must do this before you file your taxes, be sure you don't file those contributions as a deduction and do claim any interest you received on those contributions as income. If you can avoid taking any withdrawals at all from your IRA, that's the best case; however if you must pull money out for expenses, reversing your contributions will help ease the tax blow.

Other Things to Keep in Mind

Remember any severance or back vacation pay you receive when you lose your job is taxable. Plus, any government unemployment payments are also taxable. The small, silver lining to this is that in 2009 the first $2,400 of unemployment payments was tax free. Be sure to check the limits each year because they are bound to change.

Check out www.efiletaxreturns.com for more articles about preparing and filing your taxes.

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