Tax Tips For Unemployed Workers
As more U.S. workers find themselves unemployed for long stretches of time, solid tax planning becomes a more important habit. Unemployment can cause changes in your tax bracket and can result in both more and less allowable tax deductions. Understanding your tax status before the end of the year can help you avoid an unexpected tax bill and can help you know what information to gather during the year. Here are four important tax tips to employ if you are unemployed.
If you are unemployed for part of the year and perhaps even change jobs, the amount of tax withheld from your paychecks and benefit checks may not be enough to cover your tax debt for the entire year. Employers don’t take other income into account when figuring how much tax to withhold. In November or December, prepare a preliminary tax estimate, based on your income to date and your estimated income and deductions for the rest of the year. If your estimate shows that you will likely owe additional tax at the end of the year, you still have options, such as contributing cash or goods to charity and contributing to a qualified retirement plan in order to erase the extra taxes.
Track Medical Expenses
If your income drops substantially during the year due to unemployment, you may be able to claim some of your medical expenses, even if you haven’t been able to in the past. Medical expenses must be more than 7.5% of your adjusted gross income to start claiming. If your income is lower this year or your medical expenses (including some travel costs for medical care) are higher, you may meet the threshold and be able to deduct some of your expenses, including doctor’s visits, dental care and prescription drugs. Keep all of your medical expense receipts together so that you can add them all together when you are ready to prepare your tax return.
Taxpayers who have to move from one home to another to be closer to a new job may be able to deduct moving costs. The new house has to be at least 50 miles farther from your old home than your old job was from that house. Deductible expenses include storage and transportation of your household items and travel expenses that you incur traveling from your old home to your new one. Track the number of miles you have to drive in the moving process, as well as any other moving expenses to deduct against the income from your new job.