East Texas Recession Survival Guide: Avoiding tax trouble

While government fights over how to fix the economy, you're trying to fix your checkbook, and the last thing you need to worry about is tax trouble.

In this East Texas Survival Guide we take a look at staying on the good side of the IRS in a bad economy.

Nothing is certain but death and taxes, that is according to Ben Franklin, and in this time of uncertainty it is no wonder he is the face of tax preparation software.

"They make it easy to get the maximum refund guaranteed," says a TurboTax commercial.

But what happens when you lose your job and "the Benjamins" stop flowing? What do you do about taxes then?

"You could have to fork over additional monies to cover the tax on your severance pay," Elda Di De, a tax partner at Ernst & Young. "Unemployment compensation typically does not have withholding and you will owe the full tax on those unemployment benefits you've received."

If you're thinking of raiding your retirement nest egg, think again.

"You will pay ordinary income tax plus a 10 percent penalty, and if you're in a relatively high tax bracket, you could lose up to 50 per cent of your pension plan or IRA distribution to taxes," said Di Re.

And, if you're under the age of 59 and a half, an additional tax may apply. So what is tax deductible? Many of the expenses incurred in a job search.

"Transportation, going to job interview, printing up your resume, perhaps meals your'e having with prospective employers," suggests Di Re.

Even moving costs can be deducted if a new job means finding a new home as long as you meet certain criteria. The bottom line? Take the time to make sure your taxes are done accurately.

"You could have numerous tax credits which become available because you're at a lower income level and have new, different expenses," said Di Re.

During these difficult times, every dollar back makes a difference.

If you'd like other Recession Survival Guide tips click on "Know More on 7" and click on the link "Recession Survival Guide".