Just because you're trying to follow the tax code to the letter, that doesn't mean you won't inadvertently make a mistake. The tax laws are pretty complicated, after all.
Here are five terrible tax surprises you might encounter during tax season, and how to rectify those tax mistakes.
Unemployment Benefits
Yes, it's true. Under tax law, unemployment is considered wage income and the IRS wants a cut of it.
Now that you're over the shock and anger, what can you do? In 2009, you get a bit of a break. The stimulus bill passed last year exempts the first $2,400 in unemployment payments from your taxable income.
As for the rest of your taxable benefits, when you apply for unemployment benefits, consider having federal income taxes withheld. This process is similar to regular payroll withholding. In this case, the form you fill out is the federal W-4V, Voluntary Withholding Request, or a similar, IRS-acceptable document that the paying agency has created. This way, taxes will be withheld at the rate of 10 percent of each unemployment payment.
If you feel like you just can't surrender a chunk of each unemployment check to withholding, you should look into paying estimated taxes. This will help you avoid owing a large lump-sum tax bill April 15.
Alimony Received You survived the divorce. Now you havethe IRS to deal with if you're getting alimony.Ending a marriage is never a happy event. But at least you got a good settlement and those regular checks from your (insert your own description here) ex-spouse are completely warranted. They also are completely taxable.Alimony, separate maintenance payments and similar recompense from your spouse or former spouse are taxable to you in the year you receive them. Child support money, however, is not taxable. If your divorce decree calls for alimony and child support and specifies amounts for each, you only owe the IRS for the alimony payments. To avoid a big bill in April, make your IRS payments on alimony and other untaxed income via estimated tax filings.The one good tax surprise here is for the ex who's paying spousal support. Those check amounts are deductible.Forgiven Debt "Forgive but collect" is the IRS motto when it comes to canceled debt.Getting your credit card bill cut from eight grand to $4,000 certainly helped your personal bottom line. But it also could be a boon to the U.S. Treasury. Why? The tax law generally considers the amount you get any creditor to write off as earned, and therefore taxable, income to you. Expect the accommodating debt-holder to send you (and the IRS) a Form 1099-C or similar statement detailing your discharge of indebtedness as miscellaneous income.
Not every debt settlement, however, has to pad Uncle Sam's pocket. Under the Mortgage Debt Relief Act that became law in 2007, some homeowners who are granted forgiveness of mortgage debt won't have to pay taxes on that amount.There are some restrictions. The forgiven debt amount is limited to up to $2 million, or $1 million for a married person filing a separate return. The tax relief only applies to mortgage debt discharged by a lender between 2007 and 2012. And the forgiven loan must have been taken out to buy or build a primary residence, not a second or vacation home. Next >Bankrate.com is the Web's leading aggregator of information on financial products including mortgages, credit cards, new and used automobile loans, money market accounts, certificates of deposit, checking and ATM fees, home equity loans and online banking fees. Visit Bankrate.com to get the tools and information that can help you make the best financial decisions.You might also be interested in reading:10 Commonly Missed Tax Deductions7 New 2010 Tax Laws to KnowReduce Taxes Without Itemizing
