If you have any type of financial difficulty, keep in mind that there’s a tax impact to events such as job loss or foreclosure. Such consequences may not necessarily be predominantly negative. For example, if your income decreased, you may be newly eligible for the Earned Income Tax Credit or other tax credits, which is a good thing.
Of the utmost importance when facing some financial obstacle is to contact the IRS immediately if you believe that you may have trouble paying your tax bill. Please see our blog You Can’t Pay Your Tax Bill in Full You Have Options…An experienced and knowledgeable tax attorney may help ease any financial burden. Remember that to avoid additional penalties, you also should always file a tax return even if you are unable to pay.
Here are some “what if” scenarios and the possible tax impact:
Job Related
What if I lose my job? & What if I receive unemployment compensation?
The loss of a job creates new tax issues. Public assistance and food stamps are not taxable while severance pay, unemployment compensation, sick time, and payments for any accumulated vacation are taxable. You should ensure that enough taxes are withheld from these payments or make estimated tax payments to avoid a big bill at tax time.
What if my income declines?
Many tax credits are subject to income limitations. As mentioned above, the Earned Income Tax Credit is available for working families and individuals. Eligibility is determined by income and family size.
What if I am searching for a job?
Possible expenses that may be deducted include travel, resume and outplacement agency fees.
What if my employer goes out of business?
If your employer is liquidating your 401(k) plan, you have 60 days to roll it over to another qualified retirement plan or IRA. Even if an employer files for bankruptcy, it must still provide you with a W2.
What if I close my own business?
If your business is no longer operating, you still are responsible for filing all required tax returns for your business by the due dates. Employers with employees must file all required employment tax returns, including Forms 940, 941, 943 or 944. Both business and employment taxes should be paid when such taxes are due. But, if you are not able to pay in full, contact an experienced and knowledgeable tax attorney immediately to discuss your options and interact with the IRS on your behalf.
What if I withdraw money from my IRA?
Early withdrawal from an Individual Retirement Account prior to age 59½ is generally subject to being included in gross income, in addition to a 10 percent penalty. One exception to the 10 percent penalty is using IRA funds to pay medical insurance premiums after losing a job.
What if my 401(k) drops in value?
If your retirement account is already receiving favorable tax treatment, you may generally not claim a capital gains loss.
If you are struggling through a significant and economically debilitating life event, and have questions or concerns about filing and paying your taxes in this situation, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
