What Tax Deductions Are You Entitled To If You Lost Your Job?
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You can avail of tax reductions if you lost your job. However I hate to break it to you that you still owe Uncle Sam taxes even after losing your job. Here is a good, easy check list that we prepared for you:
Tax Deductible:
•Some expenses in looking for your new job such as employment fees, resume, and travel expenses for job hunting and interviews. Consult the IRS Publication 17 for additional information.
•Moving costs because of relocating for a new job. See this link.
Tax Free:
•Gifts of cash and property from family and friends (interest, dividends, or rent income) as long as they do not exceed the maximum limit for income that creates a taxable event. See IRS Publication 17 for more details.
•Public assistance and food stamps
Taxable:
•Severance pay and unemployment compensations (private unemployment funds, guaranteed annual wage, supplemental unemployment benefits).
•Wages while on vacation and sick-leave.
•Withdrawals from your pension plan unless they are transferred to a qualified plan such as an IRA.
-There is an additional tax if you are under the age of 59
For complete information, see IRS Publication 575, The Pension and Annuity Income.
•State unemployment insurance benefits (up to 26 weeks).
•Extended benefits (up to an additional 13 weeks).
For state unemployment benefits and extended benefits, you may withhold paying your taxes by as much as 10% if you complete the IRS Form W4-V.
•Gifts of cash and properties from family and friends, if it produces income (interest, dividends, or rent income) and exceed the maximum limit for income that creates a taxable event. See IRS Publication 17 for more details.
•Gains on the sale of assets (stocks, bonds, and property)
If you can’t pay the taxes that you owe for now, the IRS provides a payment plan for people in situations like yours. You can call the IRS at 1-800-829-1040 for assistance. Remember though that there is a saying that when it comes to Uncle Sam, the goal is to pay them now or pay them more later.
The most popular installment program is the Streamlined Installment IRS Plan. Be aware though that there is a hidden interest rate charge of 12% if you choose to go with this option. However the great thing about this plan and why it’s called Streamlined Plan is because it does not require verification of your income, expenses, and assets. If you owe the IRS $25,000 including penalties and interest, then this may be one of your temporary lifesaver.
Source: IRS Publication 4128: Tax Impact of Job Loss