Margaret Mitchell wrote such wisdom in Gone with the Wind as: "Death, taxes and childbirth! There's never any convenient time for any of them." Now that 2009 is upon us, we must face the inconvenience of accounting to the government for our past year. For some of us, it was not a good year. Some of us may have a special issue or two that must be addressed. Here is some basic information if the past year's hardships impact your tax return.Did you lose your job in the past year? Severance pay and unemployment compensation are taxable income. Do not forget to rollover your pension plans into another qualified plan. Otherwise, they become taxable too.
Are you looking for a new job? Some expenses related to a job hunt may be deductible, such as travel expenses related to interviews and fees related to placement agencies.
Did you lose your home in 2008? The Mortgage Forgiveness Debt Relief Act of 2007 amended the Internal Revenue Code to exclude from gross income amounts attributed to a discharge of indebtedness related to a taxpayer's principle residence (the one the homeowner lives in) up to $2 million dollars.
Did you file for bankruptcy? If you filed under Chapter 13, while the matter is pending, you should continue to file your regular income tax returns. While you do not need to count canceled debt towards your total income, you may need to reduce your losses by the amount of debt the bankruptcy does cancel. If you filed under Chapter 7 jointly with a spouse, the IRS advises you and your spouse to file separate returns. Should the bankruptcy be dismissed later, you should file amended returns on form 1040X. As with the Chapter 13 bankruptcies, any canceled debt does not count towards your total income for the year.
Are you unable to pay your taxes? You should file a return anyway to avoid additional penalties and interest. Either you or an attorney acting on your behalf should negotiate with the IRS to secure some relief, whether it be an offer in compromise, an agreement to pay your taxes in installments or to file an extension.
You cannot afford legal representation? Low Income Tax Clinics (LITCs) exist to help out qualifying individuals with legal representation before the IRS. While they may receive partial funding from the IRS, they are not associated with the government. LITCs are often non-profit organizations. The IRS can provide a list of LITCs or you may find them online at http://www.irs.gov/advocate/
For more information about the issues discussed in this article and more, contact the IRS or go online to http://www.irs.gov/.