Individuals Who Lost Jobs This Year Need Advice Now From An Enrolled Agent Tax Preparer

October 20, 2011 by  Filed under: Taxes 

Anyone who lost a job this year should seek valuable advice from a tax expert. Trying to navigate alone the complex world of income tax preparation is a mistake. Many situations can easily cause a job loss to expand into tax problems without assistance from a professional with enrolled agent certification.

Among the tax issues brought about by losing a job is the nature of a final check from the employer. The time to plan for tax consequences is before W-2s and 1099s are issued in January. An assessment of the tax impact is necessary now from someone with enrolled agent training.

The evaluation process involves determining the type of income received upon termination of the job. Some of the money is ordinary wages. Any payment of accumulated vacation or sick pay is taxed in the same way. This requires examination of the adequacy of tax withholding due to the extra amount of income.

Other funds received when a job ends might comprise retirement plan distributions. The tax incurred on this can also include an early-withdrawal penalty of 10 percent. Because such distributions seldom have tax withheld, the impact can be especially surprising.

All payments of state unemployment insurance are also subject to federal income tax. Taxpayers who fail to opt in for having federal tax withheld from these benefits can accumulate unknown trouble. Unemployment payments might push a taxpayer into a higher tax bracket or affect the availability of certain credits and deductions limited by income.

Other matters affecting taxable income are cancellation of debt, foreclosures, repossessions, and abandonments. Fortunately, enrolled agent study provides the knowledge for understanding how a newly unemployed individual is affected by any of these actions.

Another situation that usually requires enrolled agent work occurs when a taxpayer’s former employer is bankrupt and the business has closed. The employer must still submit tax-reporting forms, such as W-2s. If a W-2 is not received, the former employee follows a specific process when filing a tax return. Using a salary record or pay stubs, an enrolled agent tax preparer can prepare Form 4852, which is a substitute for a missing W-2.

Knowing the likely tax consequences of economic events pursuant to a job loss allows for adequate planning. The IRS accepts reasonable installment payment arrangements. Preparing for these requests is a service available now from IRS enrolled agents. Contact with the IRS at the earliest possible time is most conducive to obtaining a satisfactory payment agreement.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Fast Forward Academy is a leading publisher of education for income tax preparation and tax professionals. Access to free questions for the enrolled agent certification is available on their website.

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