Tax Tips for the Unemployed

At the end of 2010, 14.5 million people were unemployed; many more were out of work at one time or another throughout the year. As you start preparing your 2010 tax returns, here are a few things to keep in mind:

Unemployment benefits are taxable

In 2009, an exemption was given for the first $2,400 of unemployment benefits received. That break has expired for tax year 2010 so you’re going to need to budget accordingly (Form 1099-G will tell you how much unemployment you must report.). Also keep in mind that severance pay and accumulated sick leave or sick time are taxable as well.

Tapping retirement accounts early is costly

One of the first things people do when they’re out of work and need money is tap their retirement accounts. Raid the IRA, and with very few exceptions, you’ll be subject to a 10% early withdrawal penalty (if you are under the age of 59 1/2); 401(k) plans are subject to similar rules.

Job hunting expenses are tax deductible

Assuming you looked for a position in the same line of work in 2010, you can deduct all sorts of job-hunting costs — travel and transportation expenses to/from interviews, business cards, career counseling, the costs of preparing and copying your resume, and more. Granted, there are some caveats -expenses incurred by those seeking first-time employment are not deductible (sorry, recent grads!), you have to itemize, and all miscellaneous deductions must exceed 2% of your adjusted gross income – but you get this break even if the job search was unsuccessful.

Take credit(s!) where credit is due

Did you go back to school in 2010? Were you out of work much of the year? There are a number of tax credits that may apply to your situation. Among them: the American Opportunity credit (up to $2,500) for those who were working toward a degree in 2010; the Lifetime Learning credit (up to $2,000) for those who took classes last year to acquire or improve job skills; the Earned Income Tax Credit for low-to-moderate wage earners; and the lesser known Saver’s tax credit (up to $1,000). If you earned $27,750 or less ($55,500 for married filing jointly) and deposited money into an IRA 401(k) plan or other retirement program during the year, you may qualify for it.

Comments (5) Leave your comment

  1. In response to David Neff,

    Yes there are all kinds of deductions you can take if you itemize for having a “home office”…these would include a percentage of your utility bills like power and water, if you had a mortgage you could also deduct a percentage for the appropriate sq footage that you use for the office space, you can deduct internet charges if you use this for conducting business, paper for the printer that you use, and yes mileage to the post office to mail business mail. But you must itemize and show these deductions. I worked as an independent contractor for a photography company a few years ago and while it is a pain to keep track of this information (or in my case, do it after the fact when I found out I could deduct all this), it is well worth the headache.

  2. Had to retire from part-time job to stay at home and care for my disabled husband who is not safe alone…I’m a registered nurse by profession…..would any refund be owed me under these circumstances? thank you

  3. I am a retired 86 year old male, married and live in a non mortgage paid home. For several years I have been Secretary/Treasurer of the Bethlehem Cemetery Association. I provide the office space and perform the business transactions for the Cemetery Association. I record sale of burial lots, pay maintenance upkeep and various other business operations including banking and investing transactions. I have never taken a salary or paid for stamps, milage or any salay. Are there deductions I can include for this work on my income tax return?

  4. Hello

    I just completed my tax returns thru TurboTax and noticed while filing my FAFSA Forms that my $78,000 + education expenses did not popluated on line 23 of my return. Shouldn’t these expenses be deducted from total income and reflected in a reduced AIG? Please urgently advise.

    Thank you

    Diane

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