Last-minute tax breaks for the unemployed

By Blake Ellis, staff reporter


NEW YORK (CNNMoney) -- If you're unemployed, filing your taxes may be the last thing on your mind. But there are a handful of perks you don't want to miss.

As an unemployed taxpayer, you can deduct job search-related expenses, continuing-education courses, moving expenses if you had to relocate for a job, or home office and meal costs if you began working from home.

"This is your money that you're entitled to, and if you're unemployed it's really in your interest to get that money back this year," said Bob Meighan, vice president at TurboTax. "Refunds are averaging around $3,000, which is a pretty good chunk of money, especially if you're unemployed -- but time is running out, so get your records together and get started."

Job seekers: If you lost your job and were seeking a new one last year, you can deduct many of the costs associated with your hunt.

This includes headhunter or career coach fees, the cost of printing, photocopying or creating resumes, and even fees for joining job search sites. You can also deduct phone and fax expenses, as well as the cost of traveling to and from interviews -- including airplane tickets, bus rides and gas money.

As a job seeker, you can even deduct the cost of taking continuing education classes to maintain the skills used in your previous line of work.

And the money spent on job hunting doesn't have to result in employment. To claim the deductions, you simply need to itemize them on your return. If you do end up scoring a job and need to relocate at least 50 miles away from your current home, you can also deduct the cost of moving.

But you can't claim job search-related deductions if you're looking to completely change careers, you just graduated from school or you're returning to the work force after an extended period of time (i.e. you were working as a stay-at-home mom).

So if you want to learn a new skill and find a job in a different field, you should look into claiming one of the education credits available this year -- including the Lifetime Learning Credit, the American Opportunity Credit or the tuition and fees deduction.

Forced entrepreneurs: For those of you who gave up looking for a job and started freelancing or created your own business to pay the bills, there are also several benefits to be aware of this year.

"There's now a phenomenon where unemployed people are suddenly finding themselves self-employed and not even realizing that they're now technically business owners," said Dominique Molina, CPA and president of the American Institute of Certified Tax Coaches. "That opens the door to a lot of things they couldn't deduct before, so that's the silver lining in the cloud -- not only are they making ends meet by working or freelancing, but they're getting certain tax advantages."

One of the biggest deductions to accompany self-employment is a home office. Home office expenses can include everything from utilities and alarm systems to housekeeping and homeowner insurance.

While claiming a home office can be viewed as a red flag by the IRS, Molina said not to worry as long as it is indeed a legitimate expense. If you're really worried about getting dealt with an audit, you can structure your business so that your company can reimburse you for that home office expenses -- meaning that you wouldn't have to file a separate home office form.

You can also deduct meal and entertainment expenses if they are related to your business, and you generally don't need the receipts for expenses under $75, said Molina. That means taking clients to football games or meeting a colleague at Starbucks could qualify as legitimate deductions "as long as it has a realistic possibility of producing income for you," she added.

You can also deduct work-related travel costs when you're self-employed, just as you would if you worked for another employer.

Watch out!: On the downside, unemployment benefits are no longer tax exempt -- as they were in 2009. You are now required to pay tax on jobless benefits received in 2010, so remember to include that income on your tax return.

Also, while it's tempting to immediately tap into your 401(k) after losing your job, this isn't always in your best interest.

"When you've been laid off, not only will you have to pay tax on the amount you withdraw from your 401(k), but you could end up paying a fine on the federal level as well," said Molina. "When you get pushed out of a job and get a check in the mail, it's best to roll that money over into an IRA if you can afford to live without the funds." To top of page

 
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