Job, Home And Stimulus Tax Breaks And Traps In Difficult Financial Times
In these tough economic times with many families struggling to make ends meet and the threat of unemployment looming the last thing people want to think about is taxes. However, it is precisely at the this time, with all the government subsidies on offer covering unemployment to housing that people need to realize what tax breaks and deductions they are entitled to and what tax traps they need to avoid. These include:
Job Loss. Severance pay and unemployment compensation are taxable. Payments for any accumulated vacation or sick time also are taxable. You should ensure that enough taxes are withheld from these payments or make estimated tax payments to avoid a big bill when your taxes are due in the subsequent year. On the flip side, you may be able to deduct certain expenses you incur while looking for a new job, even if you do not get a new job. Expenses may include travel, resume and outplacement agency fees. Moving costs for a new job at least 50 miles away from your home may also be deductible. Access more career tools, advice, and information via a FREE Monster account.
Employer 401K plans: If you lose your job or your employer goes under you still have to abide by the tax rules related to IRA and 401K plans. Generally speaking, if you withdraw the funds before you reach eligible age, and do not roll it over into another qualified retirement plan or Individual Retirement Account (IRA) within 60 days, that amount will be taxable income in the year in which it is withdrawn. You may also have to pay an additional 10% tax on those early distributions. To avoid any additional taxes or penalties make sure you "rollover" your entire 401K into another qualified retirement plan or traditional IRA within 60 days.
Foreclosure and Home Loss: Normally, mortgage debt owed to a financial institution that is cancelled or forgiven (e.g. in a short sale) is taxable.
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