For thousands of people, 2009 was a pretty rough year. But now that it’s tax time, there may be some breaks available for those who lost a job, looked for one, were overwhelmed by debt or had to take a pay cut.

Some of these are one-time-only offerings. Others may apply only because your situation got so much worse, but that shouldn’t stop you from pursuing them. Here’s what to consider.

-Did you collect jobless benefits during 2009?

The American Recovery and Reinvestment Act of 2009 offered a bit of a tax break to jobless people for last year only. On 2009 returns, taxpayers can exclude up to $2,400 of unemployment compensation from taxable income.

Normally, all money received through unemployment compensation would be taxable, said Luis D. Garcia, a spokesman for the IRS in Detroit. Look for a Form 1099-G, Certain Government Payments, to show the total unemployment compensation paid to you in 2009.

If both a husband and a wife received unemployment compensation during 2009, each would be able to exclude up to $2,400 in benefits from taxable income, according to Mark Luscombe, principal analyst for CCH, a Wolters Kluwer business.

Report unemployment benefits that exceed the $2,400 limit—or $4,800 if both spouses were out of work and collecting—on Line 19 of the first page of the 1040.

- Did you hunt for a job during the year?

Take a close look at whether you could deduct some of the expenses involved, such as long-distance calls or unreimbursed travel. If you qualify, the deductions could apply even if you didn’t get hired.

Not everyone will get this break. You cannot, for example, deduct job-hunting expenses if you’re looking for your first job out of school or if you are looking for a job in a different line of work.

Other hurdles must be crossed, too. Bob Scharin, senior tax analyst for the Tax & Accounting business of Thomson Reuters, said you’d have to itemize deductions and see whether you have enough miscellaneous expenses to take one for job-hunting deduction. Those miscellaneous expenses would have to be greater than 2% of your adjusted gross income (AGI). (Your AGI is found on line 37 of the regular 1040 form).

If your adjusted gross income was $50,000 for 2009, then you’d need more than $1,000 in miscellaneous expenses to be able to take any miscellaneous deductions on Schedule A.

Luscombe said job-hunting expenses can include resume printing, postage, faxes, long-distance calls and unreimbursed travel, including air, taxi and rail as well as mileage and tolls, and lodging for out-of-town interview trips.

- Did you work through a credit mess and have debt forgiven?

While it’s a relief to see credit card debt or other loans forgiven, it’s a shock at tax time to learn that generally any amount of debt that is settled for less than the amount owed is subject to taxes. Your lender would send you Form 1099-C, Cancellation of Debt, to show you what to report on your tax return.

“Many people are surprised when they get the Form 1099-Cs in the mail, and the IRS indicates that many more 1099-Cs are being sent out,” Luscombe said. A taxpayer should receive a 1099-C if $600 or more of debt is forgiven by a federal agency, financial institution or credit union. Not all canceled debt will trigger taxable income. There are exceptions for such things as insolvency or bankruptcy—and foreclosure.

The Mortgage Forgiveness Debt Relief Act of 2007 allows taxpayers to generally exclude income from the discharge of debt on their principal residence or mortgage restructuring. This won’t help if your mortgage debt involved a second home or vacation home.

- Did your paycheck get smaller?

Nobody is celebrating a wage cut, fewer hours or several months without work. But if last year was particularly rough, you might qualify for the Earned Income Tax Credit. You must have some income from wages or a job for 2009 and earn less than set income limits.

For example, your adjusted gross income would need to be less than $40,463 if you’re married, filing a joint return and have one child who would qualify under the credit. The maximum earned income credit is $3,043 if you have one qualifying child.

The income limit is $48,279 if married and filing a joint return and if you have three or more qualifying children. The maximum credit is $5,657 for three or more children.

- Did your income drop so much that you now qualify for some breaks that couldn’t work for you last year?

Scharin noted families that had college tuition bills in 2009 could benefit on their tax return this year from certain education credits that are not allowed once you hit certain higher-income levels.

The American Opportunity Tax Credit—formerly called the Hope Credit—offers up to $2,500 for qualified tuition and fees paid for each eligible student in the first four years of college. The American Opportunity Tax Credit cannot be used, though, if your modified adjusted gross income hits $90,000 or $180,000 on a joint return.

“Just because you weren’t eligible in the past doesn’t mean you’re not eligible now,” Scharin said. “Don’t assume because the line was blank last year you should leave it blank this year.”

 

(c) 2010, Susan Tompor, Detroit Free Press.