Icon Tax Group: Job Related – The What If’s of Taxation

michael-lodge

by Michael Lodge

Every tax clients either calls or comes into our office and the first question is “What If……”.  If you have any questions please call our office at:  877.778.1770 and visit our web page at:  www.icontaxgroup.com

What if I lose my job?

The loss of a job may create new tax issues. Severance pay and unemployment compensation are taxable. Payments for any accumulated vacation or sick time also are taxable. You should ensure that enough taxes are withheld from these payments or make estimated tax payments to avoid a big bill at tax time. Public assistance and food stamps are not taxable. The IRS has updated a helpful publication which lists a number of job-loss related tax issues. For more information, see Publication 4128, Tax Impact of Job Loss.

What if I receive unemployment compensation?

Unemployment compensation you received under the unemployment compensation laws of the United States or of a state must be included in your income. It is taxable income. If you received unemployment compensation, you should receive Form 1099-G showing the amount you were paid and any federal income tax you elected to have withheld. For more information, see Publication 525, Taxable and Nontaxable Income.

What if my income declines?

There are many tax credits that are subject to income limitations. If you had a reduction in income this year you may be eligible for some credits or deductions. For example, the Earned Income Tax Credit is available for working families and individuals. Eligibility is determined by income and family size. You must file an income tax return in order to claim EITC. See 1040 Central for more information on EITC, other tax credits and tax law changes.

What if I am searching for a job?

You may be able to deduct certain expenses you incur while looking for a new job, even if you do not get a new job. Expenses may include travel, resume and outplacement agency fees. For more information, see Publication 529, Miscellaneous Deductions . Moving costs for a new job at least 50 miles away from your home may also be deductible.

What if my employer goes out of business or into bankruptcy?

Your employer must provide you with a Form W-2 showing your wages and withholdings for the year by January 31 of the following year. For example, if you were employed during 2013, your employer should provide you with a W-2 for 2013 by Jan. 31, 2014. You should keep up-to-date records or pay stubs until you receive your Form W-2. If your employer or its representatives fails to provide you with a Form W-2, contact the IRS and we can help by providing you with a substitute Form W-2. If your employer is liquidating your 401(k) plan, you have 60 days to roll it over to another qualified retirement plan or IRA. For more information, see Publication 4128, Tax Impact of Job Loss.

What if I close my own business?

If your business is no longer operating, you still are responsible for filing all required tax returns for your business by the due dates. In addition, if you had employees, you must file all required employment tax returns, including Forms 940, 941, 943 or 944. Both business and employment taxes should be paid when due. But, if you are not able to pay in full, contact the IRS immediately to discuss your options.

What if I withdraw money from my IRA?

Generally, early withdrawal from an Individual Retirement Account (IRA) prior to age 59½ is subject to being included in gross income plus a 10 percent additional tax penalty. There are exceptions to the 10 percent penalty, such as using IRA funds to pay your medical insurance premium after a job loss.

What if my 401(k) drops in value?

Generally, you can not claim a capital gains loss on your retirement accounts that already are receiving favorable tax treatment. The only time you would have a loss is when you receive a distribution that had previously been taxed.