Chicago Bankruptcy Attorneys Recommend Cash Cushion For Tax Season
So you lost your job last year and picked up some unemployment benefits. Once you find employment, you're out of the woods, right?
Not necessarily, say Chicago bankruptcy attorneys. Unemployment benefits sure come in handy when you need to put food on the table. But they can also cost you. As it turns out, unemployment benefits are taxable after the first $2,400 - or $4,800 per married couple. After that amount, you'd better start treating those payments as income, because they'll be taxed that way. Not sure how much you received last year? You should receive a Form 1099-G in the mail, which you'll need to report on your 1040.
Fortunately, there are ways to offset some of the damage - and not just of unemployment benefits, but of any surprise tax.
For instance, expenses you incurred while looking for a job - traveling to interviews, the cost of printing and sending out resumes or the price of using a job agency - are tax deductable if they add up to at least 2 percent of your gross income. If you're not already, start saving receipts and logging every mile you travel.
But deductions only cover some of the cost. The best way to reduce the impact of tax time - or any surprise expense - is to be prepared. Whether it's unexpected taxes, medical bills, or a sudden loss in income, chances are you're going to someday need some extra cash to draw on. Not only will having cash handy make things easier financially, but you won't have to exacerbate an already stressful time by freaking out over where to find more money.
If you don't already have a cash cushion, it's time to stop making excuses. Try to designate a certain amount each paycheck to be deposited into an emergency savings account - ideally, you'll save 10 percent of your income but even five bucks is better than nothing. You can increase your savings as you can afford it. The point is to make it a habit. This step may be even more important than paying down debt, as having an emergency fund can prevent you from taking on even more debt should an emergency actually arise.
Speaking of debt, if your bills are so high that you can't afford to start building up a cash cushion, you know that you have too much of it. Chapter 7 bankruptcy is often a good choice for the unemployed because it can discharge unsecured debts like credit card, utility and medical bills in as little as a few months - but it's not your only bankruptcy option. Find out if there's a bankruptcy plan right for you with a free personal debt analysis from a Chicago bankruptcy attorney. This is one benefit you won't have to pay for.