Taxpayers have a little more than a month to take advantage of the special 2010 opportunities for saving taxes with Roth Individual Retirement Accounts.

That’s because 2010 delivers special benefits to people who convert their IRAs into Roth IRAs.

Starting in 2010, all taxpayers, regardless of their income level, are allowed to move money from a traditional IRA to a Roth IRA. Before 2010, only people earning less than $100,000 could do that. Beware, the benefit expires at the end of this year, but many believe it will be extended along with a large portion of Bush tax cuts.

But another key benefit is now starting to make the Roth conversion seem even more attractive: That’s the one-time-only offer, good in 2010, to convert from a traditional IRA to a Roth and then spread the resulting tax burden over 2011 and 2012. As many Washington insiders expect income tax rates to remain the same for the next year or so, converts can take advantage by locking in relatively low tax rates on conversions and still defer the tax burden for a year or two.
More on Year-End Tax Tips: Saving Taxes With A Roth IRA

Many taxpayers had difficult financial times in 2009. If you are one of the millions of Americans who lost your job, received unemployment compensation, received less income, searched for a job, closed your own business, withdrew money from your IRA or had a drop in value in your 401(k), they may be a tax impact on your federal income tax filing.

Here is a quick summary of “What If” scenarios and the possible tax impact on your federal income tax filing:

What if I lose my job?
The loss of a job may create new tax issues. Severance pay and unemployment compensation are taxable. Payments for any accumulated vacation or sick time also are taxable. You should ensure that enough taxes are withheld from these payments or make estimated tax payments to avoid a big bill at tax time. Public assistance and food stamps are not taxable. The IRS has updated a helpful publication which lists a number of job-related tax issues.
Publication 4128, Tax Impact of Job Loss.

What if I receive unemployment compensation?
Unemployment compensation you received under the unemployment compensation laws of the United States or of a state must be included in your income. It is taxable income. If you received unemployment compensation, you should receive Form 1099-G showing the amount you were paid and any federal income tax you elected to have withheld.
See Publication 525, Taxable and Nontaxable Income.

Note: The American Recovery and Reinvestment Act temporarily will change the taxation of unemployment benefits for the 2009 tax year only. Under the new economic stimulus law, the first $2,400 of unemployment benefits received in 2009 will not be subject to federal taxes. The exemption will be reflected on those tax returns filed in 2010.

What If Your Income Declines?
There are many tax credits that are subject to income limitations. If you had a reduction in income this year you may be eligible for some credits or deductions. For example, the Earned Income Tax Credit is available for working families and individuals. Eligibility is determined by income and family size. You must file an income tax return in order to claim EITC.
Here is more info on the EITC.

What if I am searching for a job?
You may be able to deduct certain expenses you incur while looking for a new job, even if you do not get a new job. Expenses may include travel, resume and outplacement agency fees. For more information, see Publication 529, Miscellaneous Deductions . Moving costs for a new job at least 50 miles away from your home may also be deductible.

What if my employer goes out of business or in bankruptcy?
Your employer must provide you with a Form W-2 showing your wages and withholdings for the year by Jan. 31 of the following year. For example, if you were employed during 2009, your employer should provide you with a W-2 for 2009 by Jan. 31, 2010. You should keep up-to-date records or pay stubs until you receive your Form W-2. If your employer or its representatives fails to provide you with a Form W-2, contact the IRS and we can help by providing you with a substitute Form W-2. If your employer is liquidating your 401(k) plan, you have 60 days to roll it over to another qualified retirement plan or IRA. For more information, see Starting, Operating or Closing a Business.

What if I withdraw money from my IRA?
Generally, early withdrawal from an Individual Retirement Account (IRA) prior to age 59½ is subject to being included in gross income plus a 10 percent additional tax penalty. There are exceptions to the 10 percent penalty, such as using IRA funds to pay your medical insurance premium after a job loss. For more information, see Publication 590, Individual Retirement Accounts.

What if my 401(k) drops in value?
Generally, you can not claim a capital gains loss on your retirement accounts that already are receiving favorable tax treatment. The only time you would have a loss is when you receive a distribution that had previously been taxed. For more information, see Publication 575, Pension and Annuity Income.

If you believe you may have trouble paying your tax bill contact the IRS immediately. There are steps you can take to help ease the burden. You also should file a tax return even if you are unable to pay so you can avoid additional penalties.

source: irs.gov