Tax season can be an absolute nightmare for people out of work and hard pressed to turn up any extra cash. But the reality remains that unemployed individuals are still required to report to Uncle Sam. With the current unemployment rate still hovering at close to 9%, the number of people confronting this dilemma is significant.
Colleen Ginn, an IRS enrolled agent whose clientele once included a large number of mortgage banking executives, was surprised to learn that "many professionals struggling to find jobs after being laid off are confused about the tax ramifications of their current work status." As enrolled agents, CPAs and any other registered tax agent schooled in tax CPE knows, people with spotting unemployment records have tax obligations that the IRS will expect them to meet.
Loanscash, cash loan advance, fast cash payday loan,
Key Questions
Here are a few items tax professionals working with unemployed clients should bear in mind:
Must the Unemployed Pay Taxes?
The IRS requires anyone who received a W2 from an employer and made at least $8,950 (if you're single and under 65 years old), or made at least $400 if self employed, to file a tax return. People expecting a tax refund must file even if they didn't work.
For example, if a person had unemployment compensation throughout the year, that person may owe some tax on the checks received. A severance package could also result in a tax bill, as could dividends and interest from investment income.
Other factors that could play a role, and should be carefully considered by the taxpayer's enrolled agent or CPA, include their tax deductions and other life changes associated with unemployment, like whether a person downsized a house or garnered supplemental income.
Do I have to pay tax on my unemployment checks?
Yes. Unemployment compensation is taxable on federal and most state tax returns. When applying for unemployment, individuals are able to choose whether they want federal and/or state income taxes automatically deducted from their unemployment benefits. If they choose to withhold, federal income taxes are withheld at a 10% rate, while the state rate varies. However, when they opt not to withhold, they may have to pay up come April.
Small Consolation
In 2009, the IRS ruled that the first $2,400 of unemployment benefits is not taxed. This relief was part of the American Recovery and Reinvestment Act that.
But the unemployed still must pay tax on benefits in excess of $2,400.
What about money siphoned from 401(k)?
Unemployed individuals may owe taxes if withdrew money from a retirement plan or 401(k) to supplement unemployment checks because this is considered taxable income. Clients in this position should also be cautioned that they might also be hit with a 10% penalty on early withdrawals if they are below the age of 59-1/2.
What about supplemental work?
Freelance and project work is often what helps unemployed workers make ends meet. But the earnings from this work is subject to both income tax and self-employment tax
To report that supplemental work, taxpayers must include a Schedule C with their income tax return.
If, during the course of such work, individuals made more than $600, they will receive a 1099 and must include that in their income tax return as well. (If less than $600 was made, a 1099 will not be issued, but is still considered taxable income and must be reported).
Solution to Ease the Pain
One way for individuals in this situation to avoid having to suddenly pony up the money (either in four estimated tax installments, or worse, in one lump sum) when filing the annual return is to consider having federal taxes withheld. This is the same system as payroll withholding, only now the Form W-4V is filed with the unemployment benefits office.
This form, or "voluntary withholding request," permits individuals to elect withholding from their unemployment compensation at 10 % of each benefit payment.
Tax Deductions for the Unemployed
There is a silver lining for those who stepped up the job hunt-a slew of tax deductions from the IRS. In this respect, below are a few items tax professionals working with unemployed clients should bear in mind:
Partial Relief - if a taxpayer was earning $65,000 a year and then got sacked, the person's actual income may have been much lower than the level at which he was taxed, The tax on unemployed benefits to the tune of $25,000 is considerably less than the tax on $25,000. Individuals in this position can expect a tax refund of some kind and should be encouraged to file as soon as possible.
Claim Job Search Expenses - Job search expenses, including resume preparation, postage fees, employment agency fees and travel expenses, maybe prove handy come tax time.? If unemployed taxpayers are not itemizing deductions, these expenses might not bring them over the standard deduction threshold of $5,450 (if single) or $10,900 (if married) or $8,000 (if head of the household).
However, if they have been itemizing, they can add these expenses to their miscellaneous deductions. The IRS stipulates that the job search has to have been within the taxpayer's field, but expenses are deductible even if a job is not found. For more information, see IRS Publication 529.
Pays to Have a Hobby - Taxpayers who have been freelancing or consulting after being laid off may be eligible for a refund even if these efforts have been profitable. Some expenses can be deducted as "hobby losses" provided the hobby has a profit objective.
In order to claim hobby losses, diligent records should be maintained separate from personal expenses by using a separate checking account.
Benefits of Going Back to School - Unemployed individuals stand a better chance of receiving a tax refund if they go back to school following a job loss. Thanks to a number of tax benefits for education (see IRS Publication 970), they may be able to receive a tax credit, take a tuition deduction or deduct interest paid on a student loan.
Job Relocation-When taxpayers accept a new job that required relocating, they may also be able to deduct the moving expenses not reimbursed by the new employer. But there is a caveat: the new job has to be 50 miles further than the old residence was from the old job, which basically prevents taxpayers from deducting a move within the same metropolitan area.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.
Loan In 60 Minutes, Up To $ 1500. Do Not Wait For The Cash Immediately. Instant Approval. Get Quick Loan Now!
Rating of 500 cash loan
Get Online Application at online payday loans.
0 comments:
Post a Comment