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Tax Impact for the Unemployed People

During the economic meltdown, fewer people will try to save more of their earnings by shopping fewer consumable products for their family. Because of this, a ton of businesses are affected as revenues tend to slow down and profits also are down. Consequently, business owners will try to decrease expenses by cutting back on salaries. The resulting effect would greatly change the economy even more since more unemployed individuals will have less dollars to spend and this can have a trickle impact on the economy.

When people become unemployed, there are a lot of financial effect that you need to be cognizant of. One effect would be the financial impact on your budget. Consequently, below are the most common tax issues that you have to be concerned with.

Withdrawal of Your Pension Money – Majority businesses offer various retirement plans such as 401k, 457, 403 (b), etc. There are some companies that allow you to keep your retirement plans with them. However, most companies don’t and would distribute the funds to you. You only have 60 days to transfer it to another retirement plan such as an IRA or your new employer’s pension plan. If you do not, the total amount will be included in your taxable salary and would be taxable to you. To add to that, you would have to incur a 10% early withdrawal fine if you are at the age of 59 1/2 years old or less at the time of distribution. Lastly, when you still have an outstanding amount on the personal loan from your pension plan, the remaining loan total will be automatically considered as a distribution and will be taxable to you.

Employment-Hunting Expenses You Can Write off – You are able to write off a few expenses when you are finding a new source of salary in your current occupation. Samples of these are cost of writing a resume, stamps for mailing copies of resume, fees paid to job agency, vehicle expenses from your house to interview site and vice versa. Also, you are able to write off certain travel expenses (must be ordinary and necessary) such as airfare, rental car and room costs when you travel outside of your main area for a job interview. Nevertheless, you may only write off these things if you are itemizing your return. Also, these expenses are reported on the miscellaneous expenses area that are subject to the 2% threshold on your Adjustments to your gross income.

Medical Benefits – Chances are that you may be paying your own health insurance premium and other medical expenses if you do not have any. These expenses can be deducted on your itemized schedule using the medical expenses section of your tax schedules. On the other hand, similar to the miscellaneous expenses, this is also subject to AGI restriction of 7.5 %.

Spruce Up Your Finances is the trusted resource site for which you are able to read the trusted information about tax filing guide and tax updates.

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