It didn't come as much of a surprise when the Bureau of Economic Analysis division of the the U.S. Department of Commerce reported personal income remained flat in June and a mere .2% increase in July. Unemployment stayed flat at 9.5%.
One positive aspect of this nugget of information is that you could potentially pay less in taxes. I understand that is like finishing next to last in a race and your Mom says, “At least you weren’t last son.” Or like when you receive your annual Social Security Statement that indicates, like most Americans, you've have made the same or less than the previous two years, and you think, “Yes, I will pay less in taxes!” Ya right, I was cursing my boss more than thinking about the benefits of a lower tax bracket!
Shoot, after the crap the goldman sachs employees suffered through, they aren't allowed to curse at work at all anymore! If I stayed an employee through the one of the most historic crashes of all times, I'm pretty sure cursing would become part of my every day vernacular.
We hope that you are able to increase your pay to levels that far surpass that of previous years, but in case your employer has different plans, we are here to help. Here are a few suggestions to help you maximize your pay and minimize your taxes.
The first and foremost advantage about your new lower income is that you may fall into a new tax bracket resulting in a lower tax bracket:
- Keep track of every penny you spend! Your expenses claimed as itemized deductions which are limited by your adjusted gross income may benefit you more if your income is lower. This includes tracking your mileage for business, medical or charitable opportunities.
- You may qualify for special low-income deductions or credits. (Or in your Mom’s voice: “Johnny, you qualified for after school study hall.” You may be eligible for student loan interest deductions or even the American Opportunity Credit.
Remember, if you are on unemployment you are responsible for paying taxes on that income. You need to be disciplined with your taxes on your unemployment or you could be stuck with a bill during that difficult time. If you do not have withholdings from other income during the year, I recommend you volunteering to withhold income taxes from your unemployment income to avoid a surprise tax bill.
A local income tax return service can help you evaluate your unemployment situation to determine which withholding levels, if any, are necessary to keep you in refund territory.
Disclaimer: Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.