All ’10 unemployment benefits are taxable, but there are ways to soften the blow
If you were out of work at any point in 2010, your tax return may look quite different this year.
For 2010, all unemployment benefits received will be considered taxable income. That is a big change from 2009, when a temporary exemption was granted for the first $2,400 received. Fortunately, deductions and credits can help offset any tax you owe, or increase your refund.
Deductions ■ Job search: Certain expenses can be deducted if you’re looking for a job in your most recent occupation. Similar job titles in different industries, like administrative assistant or customer service manager, would qualify. Costs for a search that let you switch from gym teacher to chef would not make the cut.
Fees for resume preparation, job counseling, and employment agencies may be claimed. If you kept a log, you may be able to claim a portion of your phone bill. The costs of travel to and from interviews may qualify, so long as the trip was primarily for job-search purposes. You can’t claim the cost of an interview suit or a pre-interview haircut.
You can deduct job-hunting expenses if the amount of all miscellaneous itemized deductions is more than 2 percent of adjusted gross income. Scour your records to see if you had expenses that weren’t reimbursed by your former employer, union dues, professional organization dues, or fees for conferences or seminars. Together, these may help lift your deductions high enough to qualify.
■ Moving expenses: If you moved to a different city you may be able to claim relocation costs, whether or not you have changed fields. The new job has to be at least 50 miles farther away from your former home than your old job was. So if you commuted 20 miles to reach your former employer, your new job would have to be at least 70 miles from your former residence.
If you can meet that requirement, you can deduct the costs for moving yourself and your family. And this is an “above the line’’ deduction, which means you can use it whether or not you itemize.
■ Medical expenses: Out-of-pocket medical expenses in excess of 7.5 percent of adjusted gross income are deductible. Typically, it’s difficult for a wage-earner to meet that threshold.
Credits ■ Education expenses up to $2,500 may be offset for someone working toward a degree. A Lifetime Learning credit of up to $2,000 may be claimed for courses used to acquire or improve job skills. If you can’t claim either, a tuition deduction may apply.
■ If you earned $27,750 or less ($55,500 for married filing jointly) and deposited money in an Individual Retirement Account, 401(k) plan, or other retirement program, you may qualify for a Saver’s credit of up to $1,000.
■ Taxpayers who earned less than $43,452 ($48,362 married filing jointly) may qualify for the Earned Income Tax Credit.
Eileen AJ Connelly writes for the Associated Press.