There’s one for you, nineteen for me.
‘Cause I’m the taxman,
Yeah, I’m the taxman.
Taxes are not my bailiwick. They’re complicated and make me a little nervous and irritable. So as I pause to procrastinate and write this post, I confess I’m still pulling my personal 2010 material together for my tax preparer.
It struck me though, that this is an area folks in career transition need to be on top of big time, or it will come back to bite you on the tuches.
The truth is when you lose a job, are looking for a new one or changing careers, it’s critical that you pay attention to the tax implications. So here goes, a little bell ringing, if you’re in the midst of preparing your 2010 return… or keeping track for your 2011 filing for that matter. I highly recommend, of course, you go to the IRSsite for in-depth help and depending in your situation, consult a tax professional.
In the meantime, if your work life was in transition last year, here are some tax prep reminders:
1. Severance pay is taxable. If you accepted a severance package and benefits when you parted ways with your former employer, or were paid for unused vacation and sick leave, that’s considered taxable income. If you expect these payouts in 2011, be sure enough taxes are withheld from these payments, or make estimated payments. See IRS Publication 17, Your Federal Income Tax, for more information.
2. Unemployment pay is taxable. Go to IRS Publication 525.
3. Some job-hunting expenses are deductible.
- These expenses are usually deductible: resume printing and postage fees, outplacement firm fees and travel expenses.
- What’s not on the allowable deduction list? Haircuts, new “interview” clothes, tuition to learn new skills for a job change (should be in my opinion), healthcare costs if you were unemployed.
- The IRS categorizes these as miscellaneous expenses. You can claim the amount of expenses that is more than 2% of your adjusted gross income. You figure your deduction on Schedule A by subtracting 2% of your adjusted gross income from the total amount of these expenses. Your adjusted gross income is the amount on Form 1040, line 38, or Form 1040NR, line 37. See IRS Publication 17, Your Federal Income Tax, for more information.
4. Moving costs for a job might be deductible. Brace yourself–these are a little screwy. In general, you can deduct your moving expenses if:
You meet the distance test. The general rule: the main location of your new position must be at least 50 miles farther from your old home than the main location of your old job. The key: the commute would have to be at least 50 miles farther if you didn’t relocate.
You meet the “time” tests. Pull out your calendars. First, your move must be within 1 year from the date you first reported to work at the new location. Next, If you’re an employee, you must also work full time for at least 39 weeks during the first 12 months after you arrive in your new job location. You don’t have to work for the same employer for all 39 weeks, or even 39 weeks in a row, but you must work full time within the same general commuting area for all 39 weeks. Got that?
If you’re self-employed, you must also work full time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months after you move. You don’t have to be self-employed in the same trade or business.
You can deduct your moving expenses on your 2010 tax return even though you have not met the time test by the date your 2010 return is due. You can do this if you expect to meet the 39-week test in 2011 or the 78-week test in 2011 or 2012.
If you don’t deduct your moving expenses on your 2010 return, and you later meet the time test, you can file an amended return for 2010 to take the deduction. See IRS Publication 521, Moving Expenses, for more details.
If you haven’t picked up stakes for a new job yet–and are nimble enough to considering moving to a new town–check out these two articles on best places to start a new career:
Additional tax help can be found in the IRS publication, The Tax Impact of a Job Loss.
So be careful out there. Like the Beatles say:
If you get too cold, I’ll tax the heat;
If you take a walk- I’ll tax your feet.
‘Cause I’m the taxman,
Yeah, I’m the taxman.
Kerry Hannon is the author of What’s Next? Follow Your Passion and Find Your Dream Job, available here www.kerryhannon.com and a contributing editor to WhatsNext.com.