With the April 17 tax deadline about two weeks away, millions of taxpayers will be scrambling to file on time and, as a result, could overlook the numerous 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.
The tax breaks for job seekers could be especially beneficial, considering that the number of jobless Americans averaged about 13.7 million throughout 2011. That figure does not include an average of 6.4 million Americans who, in any given month, had given up actively looking for a job but still wanted one.
“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. However, it is critical that these individuals seek out any financial advantage they can achieve while between jobs,” said Challenger.
“The Internal Revenue Service recognizes the difficulties those who have been unemployed for a prolonged period of time are experiencing and have announced measures to help those who cannot meet their financial obligations,” continued Challenger.
“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.
Those who find themselves unable to meet tax obligations can work directly with the IRS at special Saturday Open Houses that began March 27, allowing filers to work directly with IRS agents to resolve issues. Additionally, the IRS will consider offers in compromise, settling the debt for less than the full amount, if the tax payer is unable to fulfill his or her financial burden. Unemployed and job seeking tax payers can find miscellaneous deductions from Publication 529 on the IRS website.
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.