Posted by Abundant Wealth Planning LLC

5 Essential Tax Tips For The Unemployed

5 Essential Tax Tips For The Unemployed

Tax planning is becoming a habit in the US. The economy is shrinking; unemployment is increasing, resulting in careful tax planning. Hardship can cause a pothole in your tax bracket, but the effect can more or less allow tax deductions. Before the year ends, do your best to understand your tax status to know the vital information and prevent extra tax bills. 

Here are five essential tax tips for implementing this year if you're unemployed.

  1. Calculate Taxes Before the Deadline

An unemployed person may be unable to complete their tax debt by mere paychecks and benefit checks. This effect does not apply to employers as some income is not considered during filing. You can decide to file your tax in November or December, depending on how much you have made and the deduction for the entire year. The early filing system will show you some loopholes that indicate that you'll be in debt at the end of the year. However, this system gives you options such as donating in cash or kind to charity and instigating a retirement plan to eliminate extra taxes. 

  1. Deduct Your Moving Costs

Unemployed taxpayers are allowed to deduct their travel expenses from tax returns. You can deduct moving and fare expenses when relocating to your new home. However, the rule only applies to people that live 50 miles from their old job or home. 

  1. Switch From Unemployed to Self-Employed

The unemployment rate is higher due to Covid-19 and the recession faced in the country. The situation has placed many Americans on their own. Most workers have become self-employed, freelancers, consultants, or independent contractors. The upside is that filing taxes as self-employed instead of unemployed attracts some deductions. The rules for claiming this offer are on the Labor Department website.

A self-employed person can legally reduce the tax used to get office supplies. Now, the office appliances can be more than a desk. The IRS described a home office as an exclusive and regular place for office activities such as work. The office space deduction ranges from telephone and Internet, a property tax to utilities, rent, and more. 

Another upside of filing taxes as employees is that your and your family member's health insurance package can be deducted. The deduction is not bound by minimum percentage rules and cannot be filed using the itemizing method. Lastly, you can deduct business expenses such as fuel for moving around with clients. 

  1. Check Your Qualification Status For the EITC

Low-income earners are advised to check their EITC qualifications. The scheme is meant to reduce taxes for low-income earners. The deductible amount is based on how much you make and your family size. Those with higher benefits earn more than $15,000 as the EITC scheme has amended the gross income to over $50,000. 

The downside of being unemployed; you need an income to qualify for the program. Keep in mind that unemployment benefits are not considered credits. So, if you were unemployed for a long time, the earned income may not be enough to cross you over. But those partially employed during the year or those receiving payment as a contribution from a spouse may still qualify if only they accumulate over $5,751 for a family of three or four.

  1. Track Medical Expenses

Your medical expenses can be deducted from your income if you're unemployed. The program does not cover the entire health bill and requires up to 7.5% of gross income to qualify. If your income is lower or your medical bill is higher, you may make some money by deducting doctor visits, prescription drugs, and dental care. However, do not misplace the receipt as they stand as proof when filing your tax return.



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