Items potentially increasing your tax bill

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There’s no end to items facing taxation – ones we may be unaware of. This includes unemployment benefits, forgiven debt, and certain Social Security benefits. With tax planning, we can minimize the amount of taxation owed and be better prepared for the next tax season.As welfare and public assistance benefits usually are not subject to taxation, it may seem surprising discovering that we owe taxes on unemployment benefits. Unfortunately, there’s little we can do to reduce the obligation to pay tax on unemployment received. It’s allowable to recover certain amounts paid in as nondeductible contributions to unemployment funds. Other than that, the way to lessen the amount of taxes we pay on these benefits in April is to have more taxes withheld from these benefits throughout the year.Taxation on debt forgiveness may also seem unfair. The reason we work with lenders to have debt forgiven is because we are struggling financially to begin with. However, coming to an agreement with banks and credit card lenders to have the debt forgiven usually leads to taxable consequences. This forgiven debt is in certain circumstances regarded as taxable income. Fortunately, there are exceptions to this rule. Debts discharged in bankruptcy are not subject to taxation. Forgiven debt concerning business real property or farms also is not necessarily subject to taxation. Certain type of student loan debt forgiveness does not face taxation. In the past, tax authorities did not tax forgiveness of debt concerning one’s principal resident. However, these protections expired in 2014.There are a large number of rules concerning taxation of Social Security benefits. This includes limits regarding the amount of income earned before taxation of these benefits occurs. We need to wait and see if legislators will raise these limits in the future.

Knowledgeable tax attorneys understand methods taxpayers can take to reduce tax liabilities and help in settling tax debt disputes. The tax code is so complex that usually only professionals routinely dealing with the tax code understand provisions taxpayers can use to limit their taxes.

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