1. Get a handle on your financial situation. Rucci stresses that while all people should takes steps to understand their finances, those who are unemployed should address this with special urgency. Use programs like Quicken or QuickBooks to track and understand your monthly expenses, and plan when you will need extra money to meet one-time or seasonal expenses.
Compare your expenses to your savings, and any benefits or other income you're receiving. By doing so, you can learn how long you can maintain your current lifestyle, and determine how to best limit expenses while your income is constricted.
2. Deduct job-hunting expenses. Just as a business can deduct expenses, so can the individual job hunter. "Keep records of everything you spend in your search for a new job," Rucci says.
If the expenses you incur for your job search surpass 2 percent of your adjusted gross income, you can itemize your deductions, listing them on Schedule A on your tax return. These deductions only apply in the year in which they were incurred, and cannot be carried forward to future years when (hopefully) your income will be greater. Rucci cites the following examples:
3. Unemployment compensation is income. "Many people don't realize it, but unemployment compensation is taxable at a person's regular tax rate," Rucci says. "Because it is added to other sources of income, it can have the effect of boosting you into a higher tax rate than expected."
If you didn't have taxes deducted from your unemployment benefits, you must pay the taxes for that portion of your income in April.
4. Be careful how you deal with severance. While you can't always do so, attempt to have any severance package distributed to you over the course of more than one year. Don't forget that it is taxable income, and you should have taxes withheld. By spreading the overall distribution to two or more years, depending on other factors, you may reduce your total income in each year enough to reduce your overall tax bracket.
5. Set yourself up as a company. When you're unemployed, Rucci suggests that you create a consulting company and declare yourself the sole employee. This can be accomplished most simply as a single member LLC, where you maintain a separate checkbook for job-hunting expenses. By doing so, you can greatly expand how you can take and use deductions.
Of course the advice offered in this column is of a general nature. Each individual and family has their own particular situation to deal with, and you are strongly urged to seek your own professional tax and financial adviser to determine how the points expressed here relate to your situation.
Few are the people who relish tracking income and all their expenses, especially at a time of little or no income. Yet when you take charge of your finances and maintain good records, you can claim the deductions that are legitimately yours at tax time, and maintain your best possible financial situation for both the short and long term.
Arnie Fertig is the head coach of JOBHUNTERCOACH.COM, where he utilizes his extensive background in HR Staffing and as owner of a recruiting company to help mid-career job-hunters land their next job. Arnie provides one-to-one coaching services to individuals throughout the U.S. in all aspects of the job hunt, including: resume writing, personal branding, utilizing social media, enhancing networking skills, preparing for interviews, and negotiating compensation.