Unemployment Tax Breaks

With rising unemployment showing no signs of ending anytime soon, the following will discuss some of the current tax breaks for those who find themselves looking for new employment.

Unemployment Benefits

While these benefits normally equate to taxable income, for 2009 the first $2,400 of unemployment benefits are not taxable.

Job-Hunting Expenses

The costs associated with seeking employment can be deductible, as long as you are looking for employment in the same type of trade or business. These are NOT deductible for first-time job seekers. Deductible expenses include employment agency fees, advertisements, resume costs, job counseling and referral services, postage, travel expenses and automobile costs.

Moving Expenses

If you need to move to obtain employment, the costs associated with the move may be tax deductible. These expenses include travel (but NOT meals) and the costs of moving household goods and personal effects. For purposes of this tax deduction, you must change job sites, move at least 50 miles (computed by calculating the miles from the old house to the new job, which must be at least 50 miles more than the distance from the old house to the old job) and actually work at the new location for at least 39 weeks in the 12 months following the move. For those who are self-employed, the time is doubled to 78 weeks in 24 months.

Education credits

If you need additional education, there are tax credits available to cover some or all of the costs associated with the tuition and related expenses.

Retirement Plan Distributions

You may be able to avoid an early withdrawal penalty (10% in addition to income taxes due) if you tap into retirement plan savings to assist until new employment is found. This issue can be quite complex and many plans differ on what is permitted, so it is usually best to consult with your specific plan to see what is permitted.

Health Insurance

You are permitted to extend your health insurance for up to 18 months under the COBRA program (for yourself and family coverage). Please note, however, that you may be responsible for paying for some of the premiums here.

President Obama’s Tax Plan Takes Shape

Much talk has been heard lately about the new tax hikes in the 2010-11 Federal budget. Here are the new proposals in a nutshell:

- The top tax rates will increase to 36% and 39.6%.

- The upper limit on the 28% tax bracket will increase about $20,000 (to $230,000 for married couples and $190,000 for single filers). This will result in a small tax decrease (about $1,000) for upper income taxpayers, but will not be enough to offset the tax increases.

- The tax on capital gains will rise from 15% to 20% for taxpayers in the two top tax brackets.

- A continued phase out of some itemized deductions and exemptions for those in the top two tax brackets (this was set to expire in 2010).

- Tax breaks for those in lower brackets for education and payroll tax credits will be made permanent (this was set to expire in 2011).

- New reporting requirements on the issuance of Forms 1099 would now include corporations (currently exempt) and landlords who pay contractors (such as plumbers) for services rendered.

- Continuing the estate tax exemption of $3.5 Million (this was set to go down to $1 Million in 2011).

- All small business stock sales would be exempt from capital gains and AMT if held more than 5 years