Friday, February 5, 2010

This year, Americans are looking for every way to keep more of their money in their wallets, especially those currently searching for a job. If you find yourself between jobs, there are several things to remember this tax season, to ensure you minimize your tax liability and maximize your return. More than ever, taxpayers should consult the services of a professional to help them navigate through the complicated tax code.

1. Unemployment benefits are taxable income:
To avoid being shocked by a tax bill on April 15, taxpayers can complete Form W-4V – Voluntary Withholding Request so that 10 percent of an individual’s benefits are withheld for federal taxes. This won’t cover the cost of state taxes, so make sure to plan for that as well.

2. Job search expenses may be deductible:
If you’ve been unemployed for less than one year and you’ve acquired significant job-search expenses – such as out-of-pocket travel to interviews, educational courses, etc. – these costs may be deductible. Job-search expenses are claimed as part of the miscellaneous itemized deductions.

3. Another potential deduction could come from a job move: Qualified moving expenses (the cost of moving you, your family and your belongings) may be deductible, even if you don’t itemize. To be eligible, your move must meet certain rules, so consult tax rules or your tax professional.

4. Think twice about lump-sum severance:
These can be a quick boost to retirement savings, but income infusions bring tax implications that you should carefully consider. If a lump-sum payment makes your total annual income higher than it was last year, some credits or deductions that you normally claim may be reduced or unavailable. Severance may be paid over several pay checks, which provides you with salary continuance and a more “regular” tax picture for the year.

5. Check your lump-sum severance withholding:
Companies that provide lump-sum severances are generally required to withhold 25 percent to cover federal income tax. This may or may not be enough to cover federal taxes. State taxes would also have to be accounted for as well.

This is a post by H&R Block professional. Please visit for more tax tips.