chicot60
02-09-2011, 02:41 AM
Your Money
By Sandra Block
More than 14 million people were out of work at the end of 2010, and most of them weren't spending their unemployment benefits on arugula and cable TV upgrades. Instead, they used the benefits to keep a roof over their heads.
So with tax season approaching, some of these families may be surprised to discover that they owe taxes on those benefits. Nearly 40% of adults don't realize that unemployment benefits are taxable, according to a survey by CompleteTax, a tax software provider. Nearly a quarter believe that unemployed people don't have to file an income tax return, according to the survey.
The economic stimulus package enacted in 2009 exempted the first $2,400 of unemployment benefits from gross income. That exclusion wasn't extended into 2010, so if you collected benefits last year, all of them are taxable.
DELAY: For itemizers, IRS has set a tax-filing date of Feb. 14
FREE FILING: Tax preparation companies offer lots of options
E-FILING: 2010 IRS Free File available now for eligible taxpayers
USE YOUR SMARTPHONE: TurboTax unveils mobile app to file taxes
If most of your 2010 income came from unemployment benefits, your income was probably too low to trigger a tax bill. But many taxpayers who received unemployment benefits in 2010 worked for part of the year, or have other sources of income, such as wages from a spouse's job, says Gary Lundberg, product management director for CompleteTax. In either of those cases, there's a good chance you'll owe taxes on your benefits, he says.
That means it's particularly important to take advantage of deductions that could lower your tax bill. Among them:
•Job-hunting costs. The costs of printing your résumé, postage, long-distance calls and travel to interviews are deductible as long as you're looking for a job in the same trade or profession. You must itemize to deduct job-hunting costs. In addition, these expenses, combined with all other miscellaneous expenses, must exceed 2% of your adjusted gross income before you can deduct them.
Nearly 40% of those surveyed thought they could also deduct the cost of buying new clothes or getting a haircut, according to CompleteTax. Sadly, that's not the case. While it's important to make a good impression on prospective employers, you can't deduct the cost of a new suit.
•Moving costs. In this economy, many people have been forced to relocate to find jobs. You can deduct the cost of moving yourself and your family if your new job is at least 50 miles farther from your old residence than that home was from your old job. You can claim this deduction even if you don't itemize on your tax return.
•Health care. There's also a lot of confusion about tax breaks for health care costs, CompleteTax found. Forty-four percent of those surveyed thought that anyone who is unemployed can deduct the cost of health care. While there are some instances in which taxpayers can deduct health care costs, the majority of taxpayers don't qualify, Lundberg says.
Here's why: The deduction is limited to unreimbursed medical expenses that exceed 7.5% of your adjusted gross income. For example, if your 2010 AGI was $50,000, your deduction would be limited to medical expenses that exceeded $3,750.
TAX REFUNDS: 4 options for you to get your tax refund
TAX TIPS & ADVICE: Bankrate 2010 Tax Guide
Still, if your income declined and you spent a lot of money on health care, you might have a shot. The 2009 economic stimulus package subsidized 65% of COBRA premiums for laid-off workers for up to 15 months, making it easier for jobless workers to continue their former employer's insurance coverage. But workers laid off after May 31, 2010, aren't eligible for the benefit. Others who originally qualified have reached the end of the 15-month period.
If you've been forced to shoulder the full cost of COBRA premiums, or buy an individual insurance policy, you may have high enough medical expenses to qualify for the medical cost deduction. Other expenses that could help you cross the 7.5% threshold include co-payments, co-insurance, prescription drugs and travel for medical treatment.
Free tax help
Can't afford to hire a tax preparer this year? Consider these free tax-preparation options:
•CompleteTax's Premium federal program is available at no cost for anyone who claimed unemployment benefits in 2010. The program includes preparation and e-filing for one federal tax return. Find it at completetax.com.
•The IRS Free File program provides free federal tax preparation and e-filing to taxpayers with 2010 adjusted gross income of $58,000 or less. It's available at freefile.irs.gov.
http://www.usatoday.com/money/perfi/columnist/block/2011-02-08-yourmoney08_ST_N.htm
By Sandra Block
More than 14 million people were out of work at the end of 2010, and most of them weren't spending their unemployment benefits on arugula and cable TV upgrades. Instead, they used the benefits to keep a roof over their heads.
So with tax season approaching, some of these families may be surprised to discover that they owe taxes on those benefits. Nearly 40% of adults don't realize that unemployment benefits are taxable, according to a survey by CompleteTax, a tax software provider. Nearly a quarter believe that unemployed people don't have to file an income tax return, according to the survey.
The economic stimulus package enacted in 2009 exempted the first $2,400 of unemployment benefits from gross income. That exclusion wasn't extended into 2010, so if you collected benefits last year, all of them are taxable.
DELAY: For itemizers, IRS has set a tax-filing date of Feb. 14
FREE FILING: Tax preparation companies offer lots of options
E-FILING: 2010 IRS Free File available now for eligible taxpayers
USE YOUR SMARTPHONE: TurboTax unveils mobile app to file taxes
If most of your 2010 income came from unemployment benefits, your income was probably too low to trigger a tax bill. But many taxpayers who received unemployment benefits in 2010 worked for part of the year, or have other sources of income, such as wages from a spouse's job, says Gary Lundberg, product management director for CompleteTax. In either of those cases, there's a good chance you'll owe taxes on your benefits, he says.
That means it's particularly important to take advantage of deductions that could lower your tax bill. Among them:
•Job-hunting costs. The costs of printing your résumé, postage, long-distance calls and travel to interviews are deductible as long as you're looking for a job in the same trade or profession. You must itemize to deduct job-hunting costs. In addition, these expenses, combined with all other miscellaneous expenses, must exceed 2% of your adjusted gross income before you can deduct them.
Nearly 40% of those surveyed thought they could also deduct the cost of buying new clothes or getting a haircut, according to CompleteTax. Sadly, that's not the case. While it's important to make a good impression on prospective employers, you can't deduct the cost of a new suit.
•Moving costs. In this economy, many people have been forced to relocate to find jobs. You can deduct the cost of moving yourself and your family if your new job is at least 50 miles farther from your old residence than that home was from your old job. You can claim this deduction even if you don't itemize on your tax return.
•Health care. There's also a lot of confusion about tax breaks for health care costs, CompleteTax found. Forty-four percent of those surveyed thought that anyone who is unemployed can deduct the cost of health care. While there are some instances in which taxpayers can deduct health care costs, the majority of taxpayers don't qualify, Lundberg says.
Here's why: The deduction is limited to unreimbursed medical expenses that exceed 7.5% of your adjusted gross income. For example, if your 2010 AGI was $50,000, your deduction would be limited to medical expenses that exceeded $3,750.
TAX REFUNDS: 4 options for you to get your tax refund
TAX TIPS & ADVICE: Bankrate 2010 Tax Guide
Still, if your income declined and you spent a lot of money on health care, you might have a shot. The 2009 economic stimulus package subsidized 65% of COBRA premiums for laid-off workers for up to 15 months, making it easier for jobless workers to continue their former employer's insurance coverage. But workers laid off after May 31, 2010, aren't eligible for the benefit. Others who originally qualified have reached the end of the 15-month period.
If you've been forced to shoulder the full cost of COBRA premiums, or buy an individual insurance policy, you may have high enough medical expenses to qualify for the medical cost deduction. Other expenses that could help you cross the 7.5% threshold include co-payments, co-insurance, prescription drugs and travel for medical treatment.
Free tax help
Can't afford to hire a tax preparer this year? Consider these free tax-preparation options:
•CompleteTax's Premium federal program is available at no cost for anyone who claimed unemployment benefits in 2010. The program includes preparation and e-filing for one federal tax return. Find it at completetax.com.
•The IRS Free File program provides free federal tax preparation and e-filing to taxpayers with 2010 adjusted gross income of $58,000 or less. It's available at freefile.irs.gov.
http://www.usatoday.com/money/perfi/columnist/block/2011-02-08-yourmoney08_ST_N.htm