There is a lot to consider if you have recently become unemployed, including the looming income tax filing deadline. You may be able to lessen that burden a little by following some IRS advice and taking advantage of free resources.
For instance, you may be able to take advantage of the Earned Income Tax Credit (EITC) when you file your return. The EITC is for those with low to moderate incomes and reduces the income taxes you owe; in fact, you could even get a refund.
To qualify for the EITC, you must have a valid Social Security number and earned income for the tax year; your Adjusted Gross Income (AGI) must not exceed certain limits; and you must also meet certain other conditions. For tax year 2010, a couple filing jointly with three or more qualifying children and an AGI of less than $48,362 can get a credit of up to $5,666.
To help you determine if you qualify for the EITC, the IRS has a special web tool called the EITC Assistant. You can find it here.
Severance pay, vacation and sick pay, and unemployment compensation received last year must be included as taxable income on your tax return. To help offset this income, be sure to also claim any deductible expenses you incurred to look for a new job. For instance, certain travel costs, resume preparation, and job placement fees can be deducted. If you started a new job last year, relocation costs may also be deductible under certain circumstances.
Moving retirement funds from a previous plan can also be tricky. A properly structured rollover can create a temporary loan, but failing to meet legal requirements for a rollover can cost you in additional taxes. Where possible, the best rule is to transfer retirement funds since the money never comes into your possession. If instead you rollover the funds, make sure the entire amount is re-deposited within the prescribed timeframe.
Can’t pay your tax bill when due? Special payment terms may be possible, and Offers in Compromise (OIC) may allow you to substantially reduce what you owe.
You can get free income tax answers and help with filing your return from the IRS and volunteer organizations. Click here, here, and here for more IRS tax tips. You can also call the Taxpayer Advocate Service for free help. They have toll-free numbers at 1.877.777.4778 or TTY/TTD 1.800.829.4059.
More from this contributor:
Think the U.S. Tax System Is Broken?
It’s Time to Stop the Violence