Over the past few years, countless Americans have fallen on hard times. Economic instability rocked the US for eighteen months, making the 2007-2009 decline the longest recession that postwar America has experienced to date. Even though the National Bureau of Economic Research announced that the recession officially ended in June 2009, some feared that our nation would experience a ‘double-dip recession’, in which a brief period of growth is followed by a second decline. .
While the chances of this happening are small, it’s a good idea to be prepared; Recession can affect many aspects of your finances, where taxes can play an important role. Here are a few things to keep in mind if a future recession causes damage to your current employment status or income.
– Severance pay, together with payments received for the specified vacation time or sick days, is considered taxable income. Unemployment compensation also falls into this category.
-If you experience a decrease in income, a tax credit may be available depending on your circumstances. Your eligibility for a tax credit is determined by the amount of your income and the size of your family.
-If you are actively seeking a new job, deductions may be available for travel, placement agency or other career-oriented consulting fees. This is also a possibility if you have to move more than fifty miles to find a suitable job.
-Money withdrawn from an IRA before the holder is sixty years old can be included in gross income, making it taxable.
-Benefits provided by public aid and food stamps are not taxed.
This is just a brief overview of the possibilities, and more details can be found on the IRS homepage.