Alongside the endless news of economic decline come the inevitable “what if” questions — What if I lose my job? Is my unemployment check taxable? Can I afford to take money out of my retirement account?
According to the IRS, there is a tax impact to events such as job loss, debt forgiveness, or dipping into a retirement account. The up side is that if your income has decreased, you may even be eligible for certain tax credits, such as the Earned Income Tax Credit, or EITC, which can mean money in your pocket.
In an effort to help quell some concerns, the IRS has set up a web page designed to answer in detail some of the most common questions facing people who suddenly are confronted by downsizing or downscaling. Go to www.irs.gov and type the keywords “What If” in the search box at the top of the page. There you will be led to job-related, debt-related, and tax-related questions.
Job-related questions include: What if I lose my job? What if my income declines? What if I withdraw money from my IRA? What if my 401(k) drops in value
Debt-related questions include: What if I lose my home through foreclosure? What if I sell my home for a loss? What if my debt is forgiven?
Tax-related questions include: What if I can’t pay my taxes? What if I can’t pay my installment agreement? What if I can’t resolve my tax problem with the IRS? What if I need legal representation to help with my tax problem but can’t afford it?
If you believe you may have trouble paying your tax bill, contact the IRS immediately. There are steps the IRS can take to help you take to avoid additional penalties; and you should always file your tax return on time even if you are unable pay your tax bill.