Saturday, March 26, 2011

Filing income taxes in a year of economic upheaval can be stressful, but there are deductions

Filing taxes during a time of economic hardship can be even worse than your job hunt, but there are deductions related to looking for work.

Filing taxes during a time of economic hardship can be even worse than your job hunt, but there are deductions related to looking for work.

What could be more fun than the endless worry and toil of pounding the pavement in search of a new job?

How about worrying about the fast-approaching deadline to file your income taxes? Many who have received unemployment checks throughout the year are surprised to learn that they now owe taxes on this amount - a change from 2009, when at least a portion of unemployment benefits was tax-free.

The good news is that the government does offer some little-known benefits to job seekers. For many who are struggling due to job loss or underemployment, this small break could not come at a better time.

Get the help you need

The IRS website has a great resource called Free File (apps.irs.gov/app/freeFile/). Taxpayers who meet certain eligibility requirements, such as making less than $58,000 per year, can avail themselves of free services in which tax professionals will prepare their taxes.

Deduct from your job search

You can deduct certain job-search expenses as long as you are searching for a job in the same occupation, you itemize deductions, and your writeoffs are greater than 2% of your adjusted gross income.

Have you taken an "in-between jobs" job to pay the bills? Fear not: If you are temporarily working in another field while looking for a job in your primary profession, you are still eligible to deduct job-search expenses.

Make a list of the many small expenses you incurred in your search. You may be able to deduct résumé preparation, long-distance calls, postage, copying, use of a recruiting/employment service, a percentage of your meals while traveling, mileage for going to interviews and job fairs, and fees for networking events.

Hitting the road

Did you move 50 miles or farther to take a new job?

This is good news, so long as you stay for at least 39 weeks in the year that follows.

If you qualify, you can deduct certain moving costs, such as traveling from your old home to your new one, including such traveling expenses as tolls and hotel stays.

Hiring movers or renting storage space also can be deducted.

Don't get too creative

There are certain expenses that are not deductible, which is why it cannot be overstated: Consult a tax professional. It's free in many cases.

Here are a few things that do not make the cut: Just about anything having to do with your physical appearance, such as grooming, clothing and maintenance. Your manicures, haircuts, interview suits and gym membership may all be very worthy investments, but they don't count at tax time. Interestingly, job-search expenses are not eligible for deductions if you are searching for your first job. This also goes for searches that begin after an extended period (years) of unemployment.

Another no-no: If any expenses you incurred are reimbursed by a new employer, you may not deduct them.

Taxes are complicated, especially in a year in which your financial situation went through unexpected changes. Use the information presented here, get help from a tax professional and research the IRS website (IRS.gov) to make the most of your unique situation.

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