The number of unemployed Americans reached record levels in 2010, with many experiencing prolonged joblessness lasting six months or more. And, while more than 14 million people continue to look for employment, some might find a measure of financial solace in the several tax breaks for which they are likely to become eligible as a result of their employment situation.
With the April 15 tax deadline less than one month away, the nation’s taxpayers should make themselves aware of the many tax credits and deductions available to workers, freelancers and job seekers, advises employment authority John A. Challenger, chief executive officer of global outplacement consultancy Challenger, Gray & Christmas, Inc.
“There are so many tax rules and they seem to change every year or two. It is undoubtedly an overwhelming task for most people to sift through all of the materials to figure out eligibility for a particular deduction or credit. For the unemployed it can be even more daunting, since their top priority is to find a job, not a tax credit,” said Challenger.
The Internal Revenue Service will see a record number of filings from taxpayers who were unemployed at some point in 2010. In January of last year, the number of unemployed Americans reached 16,147,000, the highest level in Bureau of Labor Statistics data going back to 1948. Over the course of the year, unemployment averaged 14,825,000, the highest annual average on record.
Making matters worse for the nation’s jobless was the fact that on average there were 6.4 million people every month who were unemployed for 27 weeks or more, which is also a record high annual average.
“Obviously, prolonged unemployment has significant implications on one’s income tax. In most cases, it is going to lower the burden. Many people will be able to lower the burden even further, for example, if they took continuing education classes to keep their skills fresh, traveled for job interviews or maintained a home office to complete freelance assignments,” said Challenger.
The unemployed are not the only ones who can enjoy tax credits. Full- and part-time workers have a wide variety of deductions they can consider when completing their taxes. Most fall under miscellaneous deductions, which allow taxpayers to claim eligible expenses that exceed two percent of adjusted gross income.
For instance, workers who have numerous unreimbursed business expenses can deduct them from their taxes. Some of the unreimbursed employee expenses that may be eligible for deduction include dues paid to professional societies; depreciation on a computer or cell phone required by an employer; licenses and regulatory fees; home office used regularly and exclusively in one’s work; subscriptions to professional journals and trade magazines; travel, transportation, entertainment and gift expenses related to one’s work; union dues and expenses; and work-related education.
Miscellaneous deductions exceeding two percent of adjusted gross income can also be applied to job-search expenses.
“Most people looking for jobs will not reach the two percent expense level from job-search costs alone. The exception might be those who have been jobless for an extended period and those looking for jobs out of town,” said Challenger.
“Those who are having difficulty finding new employment are more apt to extend their job search to other regions. Trips to interview with prospective employers significantly increase job-hunting expenses if companies do not reimburse for travel,” Challenger said.
Travel expenses, including airfare, lodging, rental car, parking, food, tolls, taxis, bus and rail costs are deductible as long as the trip relates primarily to seeking new employment in a person’s current trade or business.
Additionally, typical job hunting costs, such as typing, photocopying, printing, postage, stationery and special envelopes, are also deductible. Items associated with the job hunt, such as file folders, appointment schedulers, computers and fax machines, can be deducted as well.
Those who ended up relocating for a position may also be able to deduct expenses related to the move.
There are also deductions related to medical expenses and health insurance premiums paid by independent contractors and freelancers. Additionally, the long-term unemployed forced to dip into their retirement savings may be able to avoid some of the penalties associated with early withdrawal.
For additional and detailed explanations on all work- and education-related deductions, including those related to the job search and maintaining a home office, Challenger advises taxpayers to visit the Internal Revenue Service website (www.irs.gov) or seek the counsel of a professional tax advisor or accountant.