The recession has been hard on a lot of people. Many folks lost jobs. Others found work, but with much smaller paychecks than before.
But there's one tiny tax silver lining in this bad economic cloud: You might now be able to save a few more tax dollars.
"In this year where there's been a great deal of transition, many people might find themselves eligible for tax breaks they couldn't take previously," says Tom Karsten, senior managing partner at Karsten Tax & Financial Management in Fort Worth, Texas.
The main reason for new eligibility is the income thresholds that limit takers of some tax breaks. Some tax law changes have hiked those earnings limits. In other instances, taxpayers who are making less money now qualify.
Here are five considerations that might not have been on your tax radar in previous years, but, given your changed circumstances, you should take a look now.
Untaxed unemploymentA disturbing tax surprise for many folks who collect unemployment benefits is that those payments count as taxable income. For 2009 taxes, however, the first $2,400 of such compensation is tax-free.
You'll get a 1099-G showing how much unemployment money you received. When you report that on your tax return -- line 19 of Form 1040, line 13 of Form 1040A or line 3 of Form 1040EZ -- simply subtract $2,400 from your total and enter that reduced amount.
Retirement tax payoffsWhile it's hard to think about the future when trying to make today's ends meet, saving for retirement might pay off now as well as later.
You still can make IRA contributions up until April 15. "If your workplace doesn't offer a company-sponsored plan or even if it does and your income is under certain levels, you can make a deductible contribution to a traditional IRA," says Bob D. Scharin, senior tax analyst at the Tax & Accounting business of Thomson Reuters in New York City.
A drop in income also might make some people now eligible to open or contribute to a Roth IRA. Contributions are made with taxed dollars, but eventual distributions are tax-free.
"Here there really is that choice," says Scharin. "You could pay less tax with the deduction or if you contribute to a Roth, hope you'll pay less tax in the future. Some people may feel they are so strapped now they should take the IRA deduction and worry about the tax on their distributions when that occurs years in the future."
With a contribution to either type of IRA, as well as to a workplace retirement plan, your lower income also could make you eligible for the Retirement Saver's Credit. This is a dollar-for-dollar reduction of your tax bill up to a possible $1,000. But it can only be claimed by taxpayers with incomes of no more than $27,750 as a single filer; $41,625 as a head of household; and $55,500 as a jointly filing married couple.
"You may have been employed for a just a few months of the year and didn't think you'd be eligible for this credit," says Scharin. "Then you got laid off and your overall income for the year is low enough so you qualify."