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Understanding Federal Tax Law
from:Federal tax law can seem like a really complicated issue. But, it’s important to every single one of us, since we all pay federal taxes each year. Though you may find it complex, it pays to understand federal tax laws, since doing so can help you save money when it comes time to file those taxes this year. Most of us have a pretty good understanding of the basics for filing each year. However, there are many life events that happen to us that can change our tax situation in the year that they occur. These unusual events are often not considered when tax season comes, but you should know about them.
• Adopting a Child – According to federal tax law, you qualify for a tax credit in the year that you incur qualifying expenses related to adopting a child. This is not a deduction, it is a credit – which means that it reduces the bottom line taxes you pay. It’s important to research the details of how this credit works, but in short, you are eligible to recoup some of your adoption expenses.
• Paying for Education – According to federal tax law, the tuition that you pay for your college expenses or for the college expenses of your dependent qualify for a tax deduction. There are two types of education deductions; once called the Hope credit and one called the Lifetime Learning credit. Research both to determine which is best for your particular tax circumstances.
• Losing your job – According to federal tax law, if you lose your job, any monies you receive as part of a severance package or any unemployment you collect is taxable. However, many expenses that you’ll incur in looking for a new job are tax deductible. For example, if you pay for outplacement services or employment agencies, these fees are deductible as are fees for resume preparation. Even mileage driven to attend job interviews is deductible.
• You move – If you move for a new job, you may be eligible for a tax deduction. Whether or not these expenses are deductible depends upon how far from your current home you move and the timing of your move. And, of course, if your new employer provides relocation expenses, you cannot deduct those same expenses from your taxes.
• You Were a Disaster Victim – There are special tax provisions that apply when you are a disaster victim, particularly if your area has been declared a national disaster by the president. You’ll have additional time to file your tax returns and losses from the disaster are deductible from your taxes.
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