Tax planning can be an incredibly stressful task, especially for the unemployed. However, there are a few simple steps job seekers can take to ensure that they are making the most of their tax planning. These include calculating proper deductions, reducing income and taking advantage of tax credits.
To calculate tax deductions for proper tax planning, a job seeker should list the deductions for which he is eligible. For example, tax deductions aren’t available for first-time job seekers and can only apply to someone who is already employed. Fees for placement agencies may be deductible if one is searching for a job in his current field. However, if the job seeker’s previous company reimbursed any of those fees, he must list the reimbursement under his gross adjustable income, or AGI. Deductions such as office supplies for one’s job search and travel expenses for interviews can lower one’s taxes at the end of the year. However, expenses like clothing and cellphone plans are not deductible. Job seekers should always save and record receipts and expenses.
Considering reduced income is another important step in one’s tax planning and can actually reduce taxes. A job seeker’s income is based on all of the money he makes in one tax year minus any adjustments. The higher one’s wages, the more money he pays in taxes. Likewise, the less one makes in wages, the less he pays in taxes. Job seekers can reduce income by contributing money to a 401(k) or retirement plan through employers or banks. These contributions reduce wages. Calculating AGI is an essential first step in effective tax planning.
A job seeker's tax planning is all about finding credits and deductions that apply to the job hunt. Tax credits reduce taxes through means such as college expenses, adopting children or saving for retirement. While adopting a child merely for the tax credit isn’t a good idea, a job seeker can always take one or two college courses and earn tax credits through programs such as the Lifetime Learning Credit. Classes don't have to be related to one’s career in order to qualify. Likewise, job seekers who want to avoid additional taxes should avoid early withdrawals from any retirement plans such as his 401(K) or an IRA. The amount withdrawn becomes part of the job seeker’s taxable income.
Job seekers also can increase paycheck withholding to avoid owing taxes at the end of the year. More withholding means job seekers receive a larger tax refund, but more money is taken from paychecks each pay period.
In conclusion, job seekers who calculate these things in advance may find that tax season isn’t nearly as stressful as some say, as long as tax planning is taken seriously. By using things such as tax deductions, credits and income reduction, job seekers can effectively and efficiently plan for their upcoming tax forms without worrying about unexpected problems when filing.