03/01/2012 06:47 am ET Updated Apr 30, 2012

Tax Strategies in a Tough Economy

For most of us, income tax calculations don't change much from year to year. But thanks to the roller coaster economy of the past few years, many people have undergone major life changes that can have a significant impact -- good or bad -- on their taxable income and how they should file taxes.

Even though April 17 (this year's tax-filing deadline) is a ways off, it's never too soon to start planning your strategy, particularly if you experienced financial hardships in 2011 that could affect your taxes. The IRS has a handy guide called "The What Ifs of an Economic Downturn" that reviews the tax impacts of different scenarios such as job loss, debt forgiveness or tapping a retirement fund.

Here's a roundup of common economic challenges you may be facing and their possible tax implications:

You lost your job. Remember that unemployment benefits, severance pay and payout of accumulated vacation or sick leave are all considered taxable income, so if you didn't have taxes withheld from these payments, be prepared for a potentially nasty tax bill.

If you withdrew money from your regular IRA or 401(k) account to cover expenses, you'll owe income tax on the amount, plus an additional 10 percent penalty unless you're over age 59 ½ or meet special circumstances. Also, outstanding 401(k) loans must be repaid (usually within 60 to 90 days of termination) or they'll be counted taxable income -- plus be subject to the same 10 percent penalty.

The good news is that many public assistance benefits such as welfare, food stamps and disaster relief payments do not count toward taxable income. Read the IRS's Tax Impact of Job Loss for more details on what is and isn't taxable.

Lowered income. If you took a big pay cut or lost your job in 2011, it might lower your adjusted gross income (AGI) enough to qualify for the Earned Income Tax Credit (EITC). As an example, a married couple filing jointly, with three or more qualifying children and earning less than $49,078 could be eligible for an EITC of up to $5,751. EITC is a "refundable" tax credit, which means that if you owe less in income tax than your eligible credit, you'll not only pay no tax, but actually get a refund for the difference. To find out how EITC works and whether you qualify, visit the IRS's EITC Home Page. NOTE: You must file a tax return in order to claim an EITC.

Forgiven debt. Many people don't realize that when you borrow money from a bank or other commercial lender and the lender later cancels or "forgives" the debt, you generally must count the forgiven amount as taxable income for the year. In fact, lenders that write off debt over $600 are required to send a Form 1099-C to you and the IRS spelling out how much was forgiven.

There are several exceptions to the rule, however: For example, the Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude up to $2 million in forgiven mortgage debt ($1 million if married filing separately) on their principal residence if it came through mortgage restructuring, foreclosure or a short sale. The mortgage exclusion is set to expire at the end of 2012 unless Congress intervenes.

Other exceptions include: Debts discharged through bankruptcy; or, if you are insolvent when the debt is cancelled, some or all of it may not be taxable. (Insolvency means your total debts are greater than the fair market value of your total assets.) For more information, see the IRS Mortgage Forgiveness Debt Relief Act and Debt Cancellation page.

Job search. If you itemize deductions, you may be able to claim as miscellaneous deductions certain expenses incurred while looking for a new job in your present occupation -- even if you don't get a job -- including associated travel, mileage, resume and outplacement agency fees. Moving costs for a new job at least 50 miles from your current home may also be deductible. Note that miscellaneous deductions must exceed a combined 2 percent of your AGI to be claimed.

Taxes are the last thing you want to worry about when facing financial hardships. Just be sure you're prepared for the possible tax implications if your income or debt situation has changed in the past year.

This article is intended to provide general information and should not be considered tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how tax laws apply to you and about your individual financial situation.

To participate in a free, online Financial Literacy and Education Summit on April 23, 2012, go to Practical Money Skills.