For many Americans, 2011 was a year of big changes. Over 300,000 homes were sold, baby boomers began to retire and the unemployment rate averaged over 9 percent. To millions of Americans this meant new jobs, homes and investment strategies. As the April 17 tax deadline approaches, questions about the tax implications of these life changes are on the rise.
To help make tax season easier and ensure you get every dollar you deserve back from Uncle Sam, here are the answers to the top the five most common tax questions from TurboTax:
• If I was unemployed in 2011, are the benefits taxable? Can I write off my expenses of finding work?
Unfortunately 100 percent of unemployment benefits are taxable. So while the unemployment benefits soften the blow while you find employment, Uncle Sam still wants his cut. On the other hand, the money you spent searching for a job is an often missed tax deduction. If you actively searched for a job in the same profession as your previous one, your expenses may be deductible. The costs can include resume preparation, career placement fees, career seminars, and travel and lodging. To be eligible for the deduction, however, only your job search expenses greater than 2 percent of your adjusted gross income can be claimed. You also have to itemize your deductions.
• If I started my own business, what home office deductions can I claim?
Many small business owners who qualify for a home office deduction hesitate to take the deduction in fear that it will trigger an audit. But if you're eligible, the tax savings can be well worth the additional work required to document your eligibility. To qualify for the home office deduction, you must use part of your home exclusively and regularly 1) as your principal place of business or 2) as a place to meet with customers as part of your business or 3) where the business portion of your home is a separate structure not attached to your home.
The deduction is based on the percentage of square feet of your home office for business to total square feet. The easiest way to calculate this is to measure the square footage of your home office and calculate what percentage it is compared to the total area of your home.
Key home office deductions interest and property taxes, utilities, maintenance, and insurance. You can also include the full amount for expenses directly attributable to the business.
• My boyfriend/girlfriend moved in with me to save money. Can I claim him/her as a dependent? Who qualifies?
Who qualifies as a dependent consistently remains a confusing topic for taxpayers and an area where tax deductions are often missed. You can claim a "qualified child" or "qualified relative" if they meet certain criteria. As long as your boyfriend or girlfriend meets all the five or six tests for a qualifying relative, one of which includes living with you for the entire year, you can claim them as a dependent. The easiest way to determine if someone qualifies is to use the TurboTax step-by-step interview guidance.
• What are the tax implications if I withdrew money from my 401K?
By withdrawing funds from your 401K prior to the age of 59, taxpayers face an additional 10% tax penalty, on top of the regular income tax for early withdrawal. Additionally, you may be pushed into a higher tax bracket as a result of the additional income.
• Does refinancing my mortgage in 2011 impact my taxes?
As interest rates dropped in 2011, many homeowners took advantage of the historically low rates to refinance. If you were among them, we have good news to share with you. If the mortgage is for your primary residence, you can only deduct ratably over the term of the mortgage the points you paid to refinance the loan. If the mortgage is a rental property, you may be able to deduct additional charges in connection with securing the loan, such as underwriting fees, appraisal fees, and attorney fees.
Don't see the answer to your question above? Check out the TurboTax blog for additional tax tips and answers.