Americans are slowly coming out of “crisis mode” as the economy improves, but some people are still dealing with unemployment. Thankfully, the US government isn’t as cruel as some may have been led to believe, where unemployment is concerned. Below are seven Captain Cash approved ways to save on taxes while unemployed.
Be Sure to File
Those who are out of work must still file income taxes, but the requirement could be beneficial. Because yearly compensation will be lower than normal, overall tax liability is lower as well.
Find Free Income Tax Filing Services
Anyone with an AGI (adjusted gross income) of less than $57,000 can get a federal return filed for free through an IRS program. Those who do their own taxes might also check out the free editions of some tax preparers’ home software.
Deduct Job Search Costs
There are many deductions relating to employment searches. Fees for resume preparation, travel to job fairs and outofarea interviews, and costs for employment agencies can all be deducted. However, only job searchspecific costs are deductible, and those deductions must be itemized.
Determine if Medical Costs are Deductible
Unreimbursed medical bills over 7.5% of AGI are tax deductible, so unemployed taxpayers should save all receipts and medical bills. When AGI declines, more medical expenses can be written off.
Switch to a Roth IRA
Depending on a person’s tax bracket and income, it may be appropriate to convert to a Roth IRA to avoid paying higher taxes later. However, the amount converted is taxable. Before switching, the taxpayer should do some research (or hire a tax consultant).
Consolidate the 401k
This tip has very little to do with taxes, but a 401k plan typically has more expensive versions of what’s available in an IRA. When a person loses their job, they can roll assets into a traditional IRA for yearly savings. Taxpayers should avoid withdrawals for living expenses, as they come with penalties and additional tax liability.
Determine EITC Eligibility
The EITC (Earned Income Tax Credit) is a benefit for workers who don’t earn much. Because overall earnings decline with a layoff, a taxpayer may be newly eligible for the EITC. Unemployment can put tremendous financial strain on a family, but there are ways to save on taxes while unemployed. By remembering to file, maximizing deductions, consolidating retirement accounts and finding all available tax credits, unemployed Americans can reduce their tax liability for the year.
