Tax Time: Tips and Tools for the New Economy
As tax time approaches, there are literally millions of Americans who are wondering what Uncle Sam expects from them on April 15. Double-digit unemployment, layoffs, home foreclosures, lost investment portfolios and lower wages all mean that our financial lives have taken a hit.
Depending on your situation, 2009 could have brought with it remarkable changes in your personal finances. Perhaps you’re in a different (lower) tax bracket. Maybe you’re facing taxes on disability income or some other form of income you weren’t anticipating. Maybe you’ve taken big losses in your investments. Before you file your taxes, make sure you take into account these tips and factors. They could help you.
- Are you on unemployment? Most people don’t realize that their unemployment benefits are taxable. Basically, it’s just like earning a paycheck, and you’re supposed to pay taxes on the first $2,400 they receive in unemployment benefits. Make sure your tax preparer knows about this, or make sure you have Form 1099-G available. Uncle Sam will make sure you file it.
- Did you borrow from your retirement? Tens of thousands of us watched our retirement savings dwindle in 2008 and 2009, and many of us also borrowed from our future to save our homes and pay necessary bills. Remember that any money you borrow from your retirement fund (such as a 401(k)) is taxable. As far as taxes are concerned, that’s income. You might also be subject to a penalty on the money you withdrew. There are some exclusions and circumstances in which you won’t be penalized, but make sure you know your obligations.
- Are you an independent contractor or freelancer? We all know someone who lost a job and went out on their own to start a new service, freelance or switch to self-employment until a permanent job could be found. But self-employment brings with it a very unique set of tax guidelines, and you need to be certain you’re following all of the self-employment tax regulations. If you plan on staying self-employed, you might want to consider forming a corporation or an LLC, because there might be tax benefits you can enjoy in the future.
- Were you sick? Now for some good news. If you were ill in 2009 and had high medical bills, you might have a credit or write-off in your future. Any medical costs (and yes, that includes health insurance costs) that exceed 7.5 percent of your adjusted gross income are eligible for a deduction.
- Are you looking for a job? Don’t forget that job-search expenses are tax deductible, too. Acceptable deductions include resume writing, printing, calls and faxes, lodging and meals, and even postage. Keep receipts for all these expenses. These deductions fall into a “miscellaneous” category that can be pretty broad. You need to have more than 2 percent of your adjusted gross income as “miscellaneous” to receive a deduction. Be sure you keep receipts for unpaid work expenses or other costs, so you can get the full benefit of “miscellaneous” expenses.