Tax breaks for job hunters

More than 14 million Americans were unemployed at the end of 2010, and many of them will be facing this tax-filing season with questions about what is — and what isn’t — taxable.

“You can’t assume that because you aren’t earning income from work that you don’t have tax obligations,” says Mark Luscombe, principal federal tax analyst for CCH, a supplier of tax information and software. “However, while you may have some taxes to report, you may also have deductions that can help you reduce or eliminate your taxes,” Luscombe says.

Unemployment benefits are taxable

At the end of last year, Congress voted to extend benefits for the long-term unemployed for an additional 13 months. But lawmakers did not extend a one-time benefit from 2009 that allowed out-of-work taxpayers to exclude up to $2,400 of unemployment benefits from taxes. That means all of the unemployment benefits you received in 2010 are taxable. Severance pay and payments for any accumulated vacation or sick time are also taxable. To make matters worse, if you didn’t opt to have income taxes withheld from your unemployment benefits during the year, you should have made quarterly estimated tax payments. If you didn’t, you may be subject to a late-payment penalty in addition to owing the outstanding taxes.

Health-insurance tax breaks

In most cases, when you lose your job, protections under COBRA (which stands for the Consolidated Omnibus Budget Reconciliation Act) allow you to extend your health-insurance coverage through your former employer’s plan — if you can afford it. Normally, to continue coverage under COBRA you must pay 100% of the health-insurance premium, without any employer subsidy, plus an additional 2% to cover administrative fees. But if you were laid off in 2009 or before May 31, 2010, you may be eligible to pay just 35% of the cost to continue health-insurance coverage under COBRA.

Generally, individuals are not allowed to take a tax deduction for health-insurance premiums they pay on their own. But if your out-of-pocket medical expenses exceed 7.5% of your adjusted gross income, you can deduct medical expenses — including health-insurance premiums — that exceed 7.5% of your AGI if you itemize your deductions.

Job-hunting expenses

Many of the costs of finding a job are tax-deductible. If you’re looking for a new position in the same line of work, you can deduct job-hunting costs as miscellaneous expenses if you itemize, but only to the extent that your total miscellaneous itemized deductions exceed 2% of your adjusted gross income. Job-hunting expenses incurred while looking for your first job don’t qualify.

Deductible job-search costs include, but aren’t limited to:
• Food, lodging and transportation, if your search takes you away from home overnight;
• Cab fares, tolls and parking costs;
• Employment-agency fees; and
• Costs of printing resumes and business cards, advertising costs, and postage.

Although job-hunting expenses incurred while looking for your first job are not deductible, moving expenses to get to that first position — or any subsequent job — are. And you get this write-off even if you don’t itemize. To qualify for the deduction, your first job must be at least 50 miles away from your old home. If you qualify, you can deduct the cost of getting yourself and your household goods to the new area, including 16 ½ cents per mile for driving your own vehicle for a 2010 move, plus parking fees and tolls. You can claim your moving costs as an “above the line” deduction on Form 1040A (the “short form”).

Source: Kiplinger

Tags: tax tips, tax tips for 2011

Posted by FinanceAZ on Mar 11 2011. Filed under Taxes. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry