From USA Today:
If you're unemployed, your tax bill will probably decline. That's small consolation — sort of like suggesting that going bald isn't so bad because you'll save money on shampoo. Given a choice, most people would rather have a full head of hair and a job.
Still, if you were laid off last year, you could be eligible for a host of tax deductions and credits that could put money in your pocket when you need it most. Tax breaks that could become available when your income is down:
•Deduction for medical expenses. Co-payments, deductibles and other unreimbursed medical expenses are deductible only if they exceed 7.5% of your adjusted gross income.
The income cut-off prevents most people with jobs and employer-provided health insurance from deducting medical expenses. But if your income has declined and you're paying more for health care, the threshold could become easier to cross.
Under a federal law known as COBRA (Consolidated Omnibus Budget Reconciliation Act), you can continue your former employer's coverage for at least 18 months. To maintain coverage, though, you must pay the entire premium, plus an administrative fee. These expenses qualify for the medical expense deduction, says Leslie Laffie, tax analyst for Thomson Reuters.
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Many employees who can't afford COBRA opt instead to buy an individual insurance policy. Premiums for these policies are also deductible, Laffie says. And if you're required to pay a specific amount out-of-pocket before your insurance kicks in, those payments also count toward the medical expense deduction.
Miscellaneous itemized deductions. Expenses that fall into this category include tax preparation costs, safe deposit box fees and — significantly, for unemployed people — job search expenses. To claim this deduction, your combined miscellaneous expenses must exceed 2% of your AGI, so this is another break that becomes more accessible when your income has declined.
Your can deduct job-hunting costs even if your search was unsuccessful, Laffie says. However, you must seek a job in the same business or trade where you were previously employed to deduct those costs.
