The last thing that many unemployed people want to deal with is
income taxes, but ignoring taxes is not a good idea. Many people
are surprised that unemployment compensation benefits are
taxable.
The last thing that many unemployed people want to deal with is income taxes, but ignoring taxes is not a good idea. Many people are surprised that unemployment compensation benefits are taxable.
There are things that you can do, however, to reduce the tax bite when you’re unemployed. Remember that job-search expenses may be deductible. They are deductible to the extent that they exceed 2 percent of your adjusted gross income. Resume preparation, long-distance phone calls, Internet charges and travel expenses related to job interviews are some expenses that may qualify as job-hunting costs.
Moving expenses may also be deductible if you move to take a new job. The move must be at least 50 miles more than the distance between your old job and your former home in order to take the deduction.
If you sell your home to take a new job, remember that the law has made selling your home less taxing in recent years. Unless the profit from the sale is more than $250,000 ($500,000 if you’re married), you won’t have to pay taxes on the gain. The general rule is that you must have owned and lived in the home for two of the last five years. If you haven’t met this two-year requirement, you may still be able to exclude some of the gain if you sell your home because of a change in employment.
If you need to withdraw money from your IRA to pay for health insurance premiums while you’re out of work, you will pay income tax on the withdrawals, but you won’t have to pay the 10-percent early withdrawal penalty. (Certain requirements apply.)
When you’re out of work, every dime counts. Take time to check the tax issues related to unemployment and looking for work. Chances are, you’ll be able to reduce your tax bill.
Mary Hubbell is a partner with the accounting and business consulting firm of Bianchi, Lorincz & Company located in downtown Hollister.
