Changing a Job for the New Year
It’s a new year and for many of you all, it's also the time you all are looking to change jobs. With new employment comes new work environments and a new household budget. Many forget that you should also consider updating your tax strategy. Whether you are moving onto another opportunity or let go from a previous one, consider the implications of taxes owed and long term retirement planning.
If you are receiving a severance, remember that amount is taxable the year you receive it as well as accrued vacation and sick pay Unemployment insurance benefits and extended benefits are also considered taxable income. Make sure to sit down with a tax professional to see if having taxes withheld or not withheld make better sense in your situation,
Starting a New Job
One of the first things you are tasked to do on the first day of your new job is that someone will give you the opportunity to adjust your income tax withholding on the W-4. This is a huge decision because it affects how much money is being withheld vs whether you will owe vs getting a tax refund. The best advice I can provide is to read each document carefully and use worksheets or a withholding calculator from the IRS to help you determine more accurately the number of allowances allowed.
Handling Retirement Funds
If you had a 401K or something similar with a previous employer, decide on handling your savings when changing jobs. I have never experienced a cash out to be beneficial to any recipient. This is because distributions from 401k and IRAs before 59.5 are taxable and subject to early withdrawal penalty of 10 percent.
In some cases, if the individual has more than $5,000 in the account, the amount may be left in that plan and grow on a tax deferred basis on the basis of satisfaction. Sometimes it makes more sense to move the 401K to a new employers 401K, if their plan accepts rollovers with dynamic investment choices. One may even roll it over into an IRA, which typically offers personalized investments and possibly penalty- free distributions.
A popular path is to roll the 401K into a ROTH IRA, this would translate into paying tax on the amount rolled into the ROTH, however all retirement withdrawals will be tax free.
Other options for people to withdraw money from an IRA penalty-free include covering over health insurance premiums, (only if one has been collecting unemployment compensation for at least 12 weeks), qualified education expenses, and purchase of a first home.
Job seeking expenses may also be deductible. Exceptions include if you are looking for a job in a completely different occupation or if there was a long break between the last job and the current one, If the requirements are set, you may deduct employment agency fees, the copies of preparing and sending out resumes to employers, phone/fax expenses. Travel expenses for looking and interviewing for a job can be deducted. These will be itemized and have to exceed two percent of your adjusted gross income before being tax deductible.
Some moving expenses can be deducted that are not reimbursed by your employer, The new workplace has to be farther than 50 miles from your old job and provides at least 39 weeks over a 12-month period.
Deductible moving expenses include the cost of packing and shipping your household goods and personal possessions, as well as insurance and 30 days of storage. You can deduct the cost of traveling to your new home one time, including hotels, but not meals, If a personal vehicle is involved, you may claim oil and gas expense as well as parking and tolls or just use the standard mileage rate,
Sale of Previous Home
Consulting a tax professional is important on this one due to capital gains and length of stay.
Getting a new job can be an exciting and rewarding experience. Make sure you are prepared to make the most of it by taking advantage of the tax help that is available. A consultation with a tax professional is key to developing a good long-term tax strategy for you and your family.