Middle class families have really been hit hard and even two-earner families are now without any income at all sometimes. However, that does not spare them from having to pay taxes.
These are tough economic times. Those who have been laid off are, for the most part, focusing on finding employment, but at this time of year, they need to start thinking about taxes too.
"People have to get a relationship with their income and their taxes," Mary Canning says.
Canning is the dean of the school of taxation and school of accounting at Golden Gate University. She says taxes are especially tricky for those who were pink-slipped this year. Unemployment benefits are taxable and the liability can be worse than many think.
"Also, they've forgotten, if they had been employed at the beginning of the year, they've sort of forgetten that income source. So, we have to incorporate that. So, what were your sources of income at the beginning of the year?" she explains.
The one bright spot of earning less is you could qualify for tax deductions and even tax credits now that were not available to you before.
"Taxpayers who live in the Bay Area are probably, because it is expensive to live here, for many of them their income was above the amount that phased out a lot of the different credits and deductions. Now, they may be at a place where they aren't being phased out and can be eligible for them," Canning says.
There is the Earned Income Tax credit, a credit for housing, and deductions for work and other expenses.
"Typical example of that would be medical expenses. We know that many people's sources of income have decreased, but I don't know of anyone where their medical expenses, medical insurance premiums have decreased," Canning says.
The IRS website has some great information, is easy to navigate, and believe it or not, it can really save you money and grief.
