If the past year was tough — maybe you had a big drop in income or lost your job — it’s crucial to rethink your tax situation by April. Even if taxes are the last thing on your mind right now, paying attention can pay off. Approaching this issue correctly could mean a larger tax refund. There are numerous tax tips and benefits you might be able to use.
Read: This Is How You Can Maximize Your Tax Return
Tax Tips You Should Know
Here Are the Situations Where You May Need to Deal with New Taxes
You’ve been collecting unemployment: Many don’t realize that unemployment benefits are taxable. Only the first $2,400 is exempt. You should receive a 1099-G form showing how much you’ve drawn and any federal income tax withheld. If nothing was withheld, you may owe taxes. Taxes are also due on any severance pay received.
You’ve withdrawn from your retirement account: IRA withdrawals are taxable if you keep the money for more than 60 days without full repayment. Additionally, there’s a 10% penalty if you’re under the age for penalty-free withdrawals, which is 59 years and 6 months. However, there are exceptions, such as using funds to pay for medical insurance after losing a job, which might spare you the penalty.
You’ve become self-employed: Starting your own business is a significant step. It’s important to learn about the tax rules that now apply to you. Whether temporarily or permanently self-employed, you must pay self-employment taxes, along with Medicare and Social Security.
The Good News Is, There Are New Tax Breaks That You Probably Qualify For
Earned Income Tax Credit: If your income was higher earlier in the year than it is now, you might qualify for the Earned Income Tax Credit. This credit targets low-income families and single workers. With a family income around $40,000, you could receive up to $5,000. It’s also a refundable credit, meaning you could get a refund even if you owe no taxes.
Other Tax Credits: You have access to various credits, such as the Child Tax Credit, the Child and Dependent Care Credit, and the Savers’ Credit. These can significantly reduce your tax burden, especially on a smaller income. For example, the Savers’ Credit could save you up to $2,000 if you’re filing jointly and have a retirement plan.
Medical Expense Deductions: You can deduct health insurance costs and other medical expenses that exceed 7.5% of your adjusted gross income.
Deductions for Moving and Job Search Expenses: You can deduct expenses related to moving and job searching if they exceed 2% of your adjusted gross income. This includes travel, relocation expenses, and long-distance calls made for job searching.
These Tax Implications Can Be Complicated
These tax tips aren’t for preparing your own tax forms. Instead, they guide you on ways to save and get a bigger tax refund. If your adjusted gross income is less than $50,000 this year, likely if you’re on benefits, you qualify for free tax preparation services. Take advantage of these services.