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Avoid tax troubles during tough economy

February 10, 2009 12:00:00 AM PST
In hard times like we're having now, the last thing you need to worry about is tax trouble. So how do you stay on the good side of the Internal Revenue Service (IRS) in a bad economy? Even if you're out of work you may be eligible for some deductions you may not know about. And not only that, you might just be able to lower your property taxes too.

Ben Franklin once said, "In this world, nothing is certain but death and taxes." In this time of uncertainty, it's no wonder that he's the face of tax-preparation software.

But what happens when you lose your job and the Benjamins stop flowing? What do you do about taxes then?

"You could have to fork over additional monies to cover the tax on your severance pay," said Elda Di Re, tax partner, Ernst & Young. "Unemployment compensation typically does not have withholding and you will owe the full tax on those unemployment benefits you've received."

If you're thinking of raiding your retirement nest egg, think again. Sherman Oaks Certified Financial Planner Bob Bryar, a former IRS agent, says the last thing you want to do is raid your 401(k) or IRA.

"If you tap into it and you're under 59 and a half, you're going to get hit with a federal penalty of 10 percent and a 2-and-a-half percent state penalty, in addition to state and federal taxes that are there already," said Bryar. "So you can lose half, if not more, of what you take out."

Bryar says unless you're facing a dire financial crisis, leave your money in your retirement account.

So what is tax deductible? Many of the expenses incurred in a job search are.

"Transportation, going to job interviews, printing up your resume, perhaps meals you're having with prospective employers," said Elda Di Re.

Even moving costs, if a new job means finding a new home, so long as you meet certain criteria.

And finally, the Los Angeles County Assessor, Rick Auerbach, says that if you think your home is worth less than you bought it for, then you might be eligible to lower your property tax for free.

"All you have to do is download it off the Web site it takes two to three minutes to fill out, name and address, and you sign it," said Auerbach.

Los Angeles County Assessor's Office

Orange County Assessor's Office (.PDF)

Riverside County Assessor's Office

San Bernardino Assessor's Office

Ventura County Assessor's Office


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