Getting laid off from your job can be an extremely difficult thing to deal with. But finding out that you may have to deal with an unexpected tax bill can make it worse. Here are a few pointers about layoffs and taxes you’ll want to keep in mind as you manage your time between jobs. Unemployed
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Are Unemployment Benefits Taxable?
According to the IRS, unemployment benefits are fully taxable. The easiest way to make sure that your tax liability is covered is to opt for the voluntary income tax withholding of 10 percent when you sign up for benefits. Remember to consider that your annual income will be reduced when you’re deciding whether to have any tax withheld.
While you might be concerned about next year’s tax liability, your most pressing issue following a layoff is making sure you have enough funds to pay your necessary expenses. Once you have your financial footing and you’re covering your important household costs, you can start planning your taxes for retirement and other important phases of your life.
Factoring in a Retirement Distribution
Many people who are suddenly laid off decide to take money out of their Roth IRA retirement account. While this can provide you with the needed cash to make it through the first few months of unemployment, it can also present an unpleasant tax bill.
In most cases, you’ll have to pay a 10 percent penalty on any retirement distribution (such as from a 401k or IRA) you take before the age of 59 1/2. If your retirement contributions were tax-deferred, which means that they were not taxed at the time of the contribution, you may also have to pay backup tax withholding of 20 percent.
What About Working for Yourself?
If you decide to begin your own business, you can claim many of your business costs as direct write-offs against your self-employment income. This goes for recurring expenses such as office supplies, business mileage, and home office costs, as well as periodic purchases; you can deduct business expenses such as travel, advertising and equipment.
However, you will be required to pay self-employment tax on your net earnings to cover both parts of your Social Security and Medicare tax. Prepare for this additional tax liability by putting some money away during the year or by making estimated tax payments each quarter. It’s important to remember that the same tax rules apply to freelance work, since you are generally considered an independent contractor in this situation.
Managing your household budget following a layoff can be very stressful. Don’t add to that stress by worrying too much about your income tax situation. Start organizing your tax information early and always seek out professional tax assistance if you need guidance. With the proper planning, you can get through your layoff without adding to your tax burden.
So, if you have IRS Problems, Owe Taxes, have Past Due UnFiled Tax Returns and need IRS HELP – Take action today! You should work with a nationwide tax relief firm. Call Advance Tax Relief (800) 790-8574
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If you think that you may need help filing your 2017 tax return and past due tax returns, you may want to partner with a reputable tax relief company who can help you get the max refund and reduce your chances for an IRS AUDIT.
Advance Tax Relief is headquartered in Houston, TX with a branch office in Los Angeles, CA. We help many individuals just like you solve a wide variety of IRS and State tax issues, including penalty waivers, wage garnishments, bank levy, tax audit representation, back tax return preparation, small business form 941 tax issues, the IRS Fresh Start Initiative, Offer In Compromise and much more. Our Top Tax Attorneys, Accountants and Tax Experts are standing by ready to help you resolve or settle your IRS back tax problems.
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Call our team today at 800-790-8574 for more information. For a free consultation, schedule an appointment with us online. Feel free to also learn about us and contact us via http://www.advancetaxrelief.com. However, it doesn’t matter where you live, we service taxpayers nationwide. We have settled millions in back tax penalties and interest for our clients nationwide.
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