Before you know it, federal income tax season will be here. If you were one of the millions of unfortunate Americans who lost their job in 2009, be aware it may have created new tax issues.

The Federal Stimulus Act has extended the tax benefit for those who received unemployment compensation in 2009. The first $2,400 of 2009 Unemployment Compensation is TAX-FREE. However, the unemployment benefits above the $2,400 limit will still count as taxable income.

Otther income tax issues created by unemployment have to do with severance and other payments. Severage payments from your former employer are taxable. In addition, any payments you received for accumulated vacation or sick time is also taxable. Always ensure that enough taxes are withheld from these payments to avoid a big tax bill.

Generally, withdrawals from pension plans are taxable unless they are transferred to a qualified plan (like an IRA). If you happen be under 59 1/2, an additional tax may apply to the taxable portion on your federal income tax.

If you sell stocks, bonds and investment property are not immediately taxable. However the sale of assets should be reported. If you have a gain on a sale, it may generate an income tax liability. You should review your overall tax situation and make sure you pay the required taxes to avoid any estimated tax penalty. Be aware that it may effect your federal income tax and state income tax (if applicable).

There are some deductions you can take when filing your federal income tax forms. You can deduct employment and outplacement agency fees, resume preparation, and travel expenses for job search and interviews.

If you lost your job, be advised that moving costs incurred because of a job change may be deductible. You must meet certain criteria relating to distance moved and timing of the move.

If you decide to start your own business after becoming unemployed, be aware that the IRS provides information and classes.

If you become eligible for Public Assistance or Food Stamps it is not taxable.

Your former employer must provide your W-2 by January 1, 2010, even if the business filed bankruptcy. If you haven’t received your W2 by the required time, contact your former employer. If that fails, the IRS can assist you in filing a substitute W-2.

If you lost your job in 2009, we suggest you contact IRS (www.irs.gov), your accountant or a tax attorney to maximize your tax deductions and reduce your tax liabilities.

Researching tax changes can be extremely boring, but it is essential that you understand how the changes affect your tax situation.  Even if you have a qualified tax consultant do your taxes, it is a good idea to at least get an idea of what it is all about.

Trying to understand the IRS tax rules and regulations is very difficult. Some are even up for interpretation. Just because someone is a CPA or does tax preparations, it does not mean they are up to speed on the tax changes made by the IRS.

For 2008, there are over 11 categorical tax changes for businesses. Below we will discuss just one of those.  If you are a business owner and buy vehicles or equipment you may be able to take advance of this tax change. It is called the Section 170 Deduction.

First we need to understand what the Section 179 Deduction Is
The Section 179 Deduction of the IRS code allows business to deduct the FULL purchase price of equipment (qualifying) that you either purchases or financed, during that tax year.

The idea behind this deduction is to promote businesses by investing in themselves by buying equipment.

The full purchase price of “qualifying equipment” can be deducted from your gross income.  Some folks call it the “Hummer or SUV Tax Loophole”

Here is an example of how it works:
Let’s say you buy a $50,000 vehicle for your business. In the past, it would usually be written off over a period of say, five years. So if it cost you $50,000. You could write off $10,000 over the five year period.

But now under the tax change, you can write off the full purchase price in the year you purchase it, up to $250,000.  However, there is a cap of $800,000 for the total amount of the equipment purchased.  After that, the deduction phases out dollar for dollar.

“But that’s not all…”

Businesses that exceed the $250k deduction can take a bonus depreciation of 50% on the amount that exceeds the limit. And then also take normal depreciation on the rest.

Do You Qualify for Section 179?
All businesses that purchase or finance less than $800,000 in business equipment should qualify for the Section 179 Deduction. In addition, most tangible goods qualify for the Section 179 Deduction. But remember, the purchases had to be made in 2008 (Jan 1 - Dec 31).

Here is a better example:

Let’s say that on March 1, 2008, you bought “qualifying equipment” with a total purchase price of $500,000.

The 1st Year Write Off is $250,000
The Bonus First Year Depreciation is $125,000 ($500,000 - $250,000 = $250,000,  50% of $250,000 = $125,000)
Then the balance is depreciated over 5 years.  So $125,000/5 years = $25,000. And you can take $25,000 additional deduction in 2008 for the first year depreciation.

The tax savings is $250,000 (1st year write off) + $125,000 (1st year bonus @ 50% of balance) + $25,000 (1st year depreciation) = $400,000 Total First Year deduction.

Understand, that your tax rate is then applied to come up with the actual savings.

Hope you got all that!

I am often asked what are the best ways to save money on a tax return? That answer depends on some many different parameters, including: do you own a home, do you have children, do you own securities, a second home, are you self employed, do you use childcare, are you filing separately or joint and, of course, how many money do you earn each year. And the list goes on and on.  My best recommendation is if you think your tax situation is too complicated, see a tax pro and get advice now!

Here are some simple tips for reducing your tax burden - and now is the time to act.  Why? Because the end of the year is less than two months away.

Okay, here goes…

IRA, SIMPLE IRA or SEP
One way to lower your taxable income for the year is to open or contribute to your IRA. Put in as much money as you can afford, up to the maximum deduction.

You can contribute to your 401(k), 403(b), deductible IRA, SIMPLE IRA or SEP. You could have made contributions for your 401(k)s and 403(b)s until up until Dec. 31, 2008. But you have until April 15, 2009 to make a contribution to an IRA.

Charitable Donations
Donating money to charities before the end of the year will count as a deduction in 2008.  You can include any  contributions charged to your credit card, even if you don’t pay it until 2009.  For any cash contributions, also ask for a receipt or use a check.

If you donate property, you can deduct the fair market value. There isn’t an exact calculation. When trying to come with an estimate, consider how much it would sell for at a garage sale (unless it’s an antique).

Stock Sales
2008 will be a year where many of us will take a hit on our stock portfolios. If you need the cash, you might consider selling the stock in 2008 and take the loss.  But talk to your tax consultant before taking this measure.  You need to consider the short term or long term ramifications of such an action.

Remember however, if you do sell stock to generate a loss, you are prohibited from purchasing substantially identical stock within the period beginning 30 days before and ending 30 days after the sale that generated the loss.