Last week I sat down with Russ & Sully from the Big Biz Show to share the top four tax help tips for 2011. If you happened to miss the show, here’s the scoop:
Tax Help Tip #1: Severance & Unemployment are Taxable. Many people don’t realize that their employers will claim their severance on the W-2s at the end of the year, which means the IRS will be waiting on your tax return to reflect the same number. Similarly with unemployment pay, consumers will receive a 1099G at the end of the year which they will need to pay taxes on. If you neglect this and mistakenly believe that it’s not taxable, you will be incurring IRS penalties for unpaid back taxes.
Tax Help Tip #2: Be wary of pitfalls when you dip into your IRA. Now with people strapped for cash, many people may be dipping into their retirement fund, specifically their IRAs. There are consequences to this move: (1) there is a 10% federal penalty for early withdraw; (2) If you live in California, there is a 2.5% state penalty for early withdraw. Getting cash from your IRA also knocks you up the income tax bracket, so you can potentially go from a 22% tax-bracket to a 30% tax-bracket by dipping into your IRA.
[Note: If you dip into your IRA for medical expenses or for the purchase of your first home, you can claim an exception to the penalty up to $1,000]
Tax Help Tip #3: Expenses of searching for a new job are deductible. This is good news for those consumers who are constantly running to Kinko’s or driving to interviews. Certain expenses such as agency or job placement service fees, Kinko’s or FedEx costs for printing and mailing resumes, and driving to interviews are all allowable deductions. So if you’re spending quite a bit on your new job search, save your receipts and claim them on your taxes this year!
Now, what is not deductible? If you buy a suit for the interview but it’s a suit that you can wear to other events or for going out. Anything that you use exclusively for the purpose of your job search or job will be deductible. If you have a tie that you use for various functions, including your job, the expense of that tie is not deductible.
Tax Help Tip #4: Be careful about the Earned Tax Income Credit. This was designed to lift the low-income earners of the country out of poverty by having the government send checks out to qualified consumers. It is not necessary for the consumer to have paid any taxes to receive this credit and thus many people abuse this privilege by falsely claiming dependents. My advice: don’t defraud the government. They’ll catch you eventually and the consequences won’t be pretty.
Taxes can be pretty tricky, which is why we recommend that you hire a professional. At the very least, don’t do your return by hand. Even simple mathematical errors can trigger an IRS audit.
Tax Resolution Services is a team of expert tax attorneys, CPAs, and Certified Tax Resolution Specialists. We’re here to help you with your IRS tax problems. Call us today at (888) 699-7630 for a free tax relief consultation or visit www.TaxResolution.com.
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