Taxes are one thing you can't avoid. When economic conditions are tough, last thing anyone wants to do is pay taxes. Luckily, you could be better off than you realize. There are some very favorable rules embedded in tax code for job seekers. When dealing with taxes, sometimes it pays to be between jobs.

This month's newsletter is a repeat of last April's newsletter. It briefly discusses some of possible tax benefits for unemployed. These are just tips that you may want to look into, please talk to a tax expert before filing your return. Don't pay more than you have to!

The following topics will be covered:

1. Basic Tax Deductions 2. The Big Bucks 3. Playing It Safe

================================================ IMPORTANT TAX TIPS FOR JOB SEEKERS ================================================

1. BASIC TAX DEDUCTIONS Many of costs associated with a job search can be deducted from your income. As long as you are not entering job market for first time, searching for work in a different field of employment, or returning to work from a long spell of unemployment, many typical job search costs are tax deductible. Individually these costs can be small, but they can add up very quickly. Eligible expenses may include:

1. Phone calls and faxing fees 2. Costs for typing, printing, and mailing resumes 3. Employment agency fees 4. Ad space in newspapers, trade magazines, or on web sites 5. Traveling costs for job interviews (This does not just include airfare or public transportation. The costs of driving to an interview can be deducted on a mileage basis.) The list continues on, but you get picture.

The 2 most important things to remember are: 1. These expenses are only deductible if you itemize them. 2. Only job search expenses exceeding 2% of your adjusted gross income are tax deductible. (please check with a tax expert on finer details)

2. THE BIG BUCKS The deductions don't begin and end with your minor expenses. As well as small costs of printing, postage, etc…, large expenses associated with job hunt can also be deducted. The two primary "major expenses" are as follows:

Spread trading is defined as opening a position by buying and selling same type of option (ie. Call or Put) at same time. For example, if you buy a call option for stock XYZ, and sell another call option for XYZ, you are in fact spread trading.

By buying one option and selling another, you limit your risk, since you know exact difference in either expiration date or strike price (or both) between two options. This difference is known as spread, hence name of this spread treading technique.

VERTICAL SPREADS

A Vertical Spread is a spread where 2 options (the one you bought, and one you sold) have same expiration date, but differ only in strike price. For example, if you bought a $60 June Call option and sold a $70 June Call option, you have created a Vertical Spread.

Let's assume we have a stock XYZ that's currently priced at $50. We think stock will rise. However, we don't think rise will be substantial, maybe just a movement of $5.

We then initiate a Vertical Spread on this stock. We Buy a $50 Call option, and Sell a $55 Call option. Let's assume that $50 Call has a premium of $1 (since it's just In-The-Money), and $55 Call has a premium of $0.25 (since it's $5 Out-Of-The-Money).

So we pay $1 for $50 Call, and earn $0.25 off $55 Call, giving us a total cost of $0.75.

Two things can happen. The stock can either rise, as predicted, or drop below current price. Let's look at 2 scenarios:

Scenario 1: The price has dropped to $45. We have made a mistake and predicted wrong price movement. However, since both Calls are Out-Of-The-Money and will expire worthless, we don't have to do anything to Close Position. Our loss would be $0.75 we spent on this spread trading exercise.

Scenario 2: The price has risen to $55. The $50 Call is now $5 In-The-Money and has a premium of $6. The $55 Call is now just In-The-Money and has a premium of $1. We can't just wait till expiration date, because we sold a Call that's not covered by stocks we own (ie. a Naked Call). We therefore need to Close our Position before expiration.

So we need to sell $50 Call which we bought earlier, and buy back $55 Call that we sold earlier. So we sell $50 Call for $6, and buy $55 Call back for $1. This transaction has earned us $5, resulting in a nett gain of $4.25, taking into account $0.75 we spent earlier.

What happens if price of stock jumps to $60 instead?