Educating the Masses to Help You Save On Taxes

It’s been a tough year for Americans, and the numbers are looking pretty grim as we go into the Holiday Season. Florida’s overall unemployment rates are hovering just over 11% and nationwide they’re around 9.6%. According to The Wall Street Journal, the average length of official unemployment increased to 24.5 weeks, and the numbers of long-term unemployed has jumped to an all-time high of 4.4million. Everyone feeling jolly yet?

Well, there is one small ray of sunshine: Last week President Obama signed the unemployment extension legislation which provides for 14 weeks of extended benefit coverage for every state and an additional 6 weeks, for a total of 20 weeks, in high unemployment states where unemployment is over 8.5%.

The average length of official unemployment increased to 24.5 weeks, the longest since government began tracking this data in 1948. The number of long-term unemployed (i.e., for 27 weeks or more) has now jumped to 4.4 million, an all-time high.” –The Wall Street Journal

However (are you ready for the other shoe to drop?), there is something you (and many others) may not realize about those unemployment benefits you’re receiving; they are considered taxable income. For those who don’t know this, a nasty surprise is coming next April.

The reprieve of unemployment comes with some surprises

I know the typical reaction to this news is to burry ones head in the sand and hope you can deal with the consequences when the time comes. But, it doesn’t have to be like that. With a little knowledge and a few preventative measures, you can avoid that sucker punch.

Under the American Recovery and Reinvestment Act, enacted in the beginning of 2009, every person who receives unemployment benefits during 2009 is eligible to exclude the first $2,400 of unemployment benefits when they file their 2009 tax return next year. If you are married, the exclusion applies to each spouse, separately if both are unemployed. Any additional amounts of unemployment benefits received in 2009 are subject to federal taxation, so you may want to consider withholding at least a small amount.

With 2009’s year end fast approaching, it is very important you start taking steps to reduce the size of your tax bill. It’s only a matter of time until we will have to repay what the government has borrowed and that means more agressive tax collections.

Here are a few individual tax incentives that you may want to consider for 2009:

• Itemized state and local sales tax deductions
• The $4,000 higher education tuition deduction
• The additional standard deduction for real property taxes
• The $250 teachers classroom expense deduction
• Prepaying certain expenses such as real estate taxes or mortgage interest
• Paying for spring college tuition in December 2009
• Year end charitable giving
• Residential energy property credits

These are some of the business tax tips and incentives that you may want to consider for 2009:

• Bonus depreciation and enhanced section 179 expensing of certain capital investments
• Additional Employer retirement contributions
• Paying bills due in January prior to 12/31
• Deferral of income until 1/1 of the new year
• Increase expenses by purchasing items in December that are needed in January
• Inventory write offs of items that are damaged or obsolete

Year end tax planning is highly individualized and has to take your personal situation into consideration. If you can, revisit your plan quarterly and adjust as new life circumstances come your way: employment status, family, investments, retirement, new tax laws, etc.

With all of the recent changes to the tax codes, I would highly suggest at least an initial consultation with your tax adviser, the cost will be nothing compared to the headaches that await you when negotiating with an IRS who has been commissioned by Congress to fill budget gaps with tax income due.