Don't forget to tally all of the expenses that go into your new job search. If you file itemized deductions, the costs related to resume preparation, travel expenses and help from job coaches and employment agencies are tax-free. That is, as long as you're looking for work that's generally in the same field as your previous employment. So if a laid-off engineer decides to try and find work as a chef, he or she can't deduct those job-related expenses.
Sure, you might really need to spend all of those lonely nights playing Call of Duty in your mom's basement to have any shot at becoming a professional gamer. That doesn't mean Uncle Sam is going to let you deduct the cost of a new PlayStation. Unless, perhaps, you were working in the video gaming industry prior to losing your job. If you haven't been working at all -- because you're fresh out of college, for example -- you're not going to be able to deduct the costs that go into looking for your first real gig.
Some folks might see losing a job as a blessing in disguise that frees them up to pursue a different career or start a business. Others might scramble to pick up some odd jobs here and there to make ends meet. The extra income could have impact on your unemployment benefit, since you are required to report it each week that you file for these benefits. States usually have a set amount you are allowed to make extra before they reduce the amount you receive. Some states are more generous than others, so check with your local department of labor before you do anything.
If you decide to try working for yourself permanently, it's important to understand the tax consequences. That includes being on the hook for the employer and employee share of Medicare and Social Security taxes. It may also require filing a schedule of profits and losses.
While you're building that new business -- or just looking for a new position -- you're probably going to need some cash. Savers can tap into retirement accounts early, but they're likely going to have to pay 10 percent in withdrawal penalties. The fee is waived if the money goes toward certain medical expenses.
- Bell, Kay. "Tax breaks for the unemployed." Bankrate.com. (Oct. 9, 2014) http://www.bankrate.com/finance/taxes/tax-breaks-for-the-unemployed-1.aspx
- Marr, Chuck. "Strengthening the EITC for Childless Workers Would Promote Work and Reduce Poverty." Center for Budget and Policy Priorities. July 30, 2014 (Oct. 25, 2014) http://www.cbpp.org/cms/?fa=view&id=3991
- Internal Revenue Service. "Topic 602 – Child and Dependent Care Credit." August 11, 2014 (Nov. 18, 2014) http://www.irs.gov/taxtopics/tc602.html
- TurboTax. "10 Tax Tips for the Suddenly Unemployed." 2013 (Oct. 9, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/Self-Employment-Taxes/10-Tax-Tips-for-the-Suddenly-Unemployed/INF12177.html
- U.S. Department of Labor. "State Unemployment Insurance Benefits." May 23, 2013 (Oct. 25, 2014) http://www.workforcesecurity.doleta.gov/unemploy/uifactsheet.asp