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A tax FAQ: 10 top questions answered

If you're among the 20 percent of taxpayers who have yet to file their federal income tax, you likely have questions, or owe money, or both.

Fortunately, tax resources like TurboTax, the Texas Society of CPAs and even the Internal Revenue Service are keeping track of the top questions this tax season that could save you money. They're also offering advice on what to do if you can't pay your taxes this month.

Here are some of the top questions and strategies this year:

Dependents -- From TurboTax clients: Can I claim my grown kids, elderly parents, unemployed brother or other relatives as a dependent on my taxes? Answer: If they live with you full time and you provide half their support, then yes, you can, said Bob Meighan, a CPA and vice president with the tax software giant.

You can also claim nonfamily members who live with you full time and relatives you support who don't live with you. The worksheet on calculating such dependents' support costs, including figuring their rent in your house, annual utility costs, food and other related expenses is time-consuming, but it may be worth a $3,650 deduction. See IRS publication 501 at www.irs.gov.

Unemployment benefits -- The bad news is, these benefits are taxable. So is severance pay from a former employer and any additional payments you might have received for unused sick pay or vacation, according to the Texas Society of CPAs. But you do get a bit of tax break on your unemployment payments: The first $2,400 you received in 2009 is excluded, so you don't pay taxes on it.

IRA withdrawals -- If you withdraw money early from your IRA or other retirement plan, you generally must pay a 10 percent penalty and taxes on that money. But if you contributed money to an IRA in 2009, you can take back that contribution tax-free as long as you do so before the April 15 tax return deadline. If you do this, remember that you must also pay taxes on any interest or dividends you earned on that contribution while it was in the IRA. Also, you cannot claim a deduction for the contribution. See IRS publication 590 for more information.

Education credits -- There are four higher-education credits to choose from now, Meighan said. The American Opportunity Credit is new. It expands the Hope credit, making it available to people with higher incomes and those who owe no taxes. A deduction for tuition and fees for education and a lifetime learning credit are also available.

"Knowing which one you qualify for is extremely difficult," Meighan said. "It's also difficult to know which is going to give you the best tax benefit."

Meighan said TurboTax does up to 243 calculations to figure which deduction is best. You can also refer to IRS Publication 970, a 99-page instruction book on tax benefits for education.

Extensions -- You can get an automatic six-month extension to file, until Oct. 15. But this extension does not give you more time to pay any taxes due. If you have not paid at least 90 percent of the total tax due by April 15, you could be subject to an estimated tax penalty. Use Form 4868 to file an extension.

More taxes than money -- If you cannot pay the full amount of taxes you owe by the April 15 deadline, file your return and pay as much as you can, Dallas IRS spokesman Clay Sanford advises. Contact the IRS at 800-829-1040 to discuss payment options such as an installment agreement or an offer in compromise.

You can also apply for installment payments online. More than 75 percent of taxpayers eligible for an installment agreement can apply using the online payment agreement at www.IRS.gov. Find out more about this simple process by typing "online payment agreement" in the search box on the IRS.gov homepage.

Home-buyer credits -- More than 165,000 Texans have collected nearly $1.2 billion in first-time home-buyer credits, Sanford said. Nationally, through mid-February, nearly 1.8 million Americans had filed returns to collect $12.6 billion in tax credits for homes they bought in 2008 and 2009.

The tax credit deadline for having a binding contract to buy a home is April 30 of this year. The deal must close by June 30.

The first-time home-buyer credit, worth up to $8,000, is for those who have never owned a home or have not owned a home in three years. Legislation last year expanded the credit to include those who lived in a house for a five-year period out of eight years and who buy a new main home after Nov. 6, 2009. This credit isn't as big -- a maximum of $6,500.

E-file -- Electronically filing guides you through the filing process by asking you questions (lots of questions) and helps you check for deductions and credits you might miss. It also provides for quicker refunds. The average federal refund so far this year is $3,036, up $266 from a year ago. If you owe tax, you can pay by credit card using e-file, although fees apply.

Job-hunting expenses -- You may be able to deduct some of the expenses you incurred to search for a new position, but it has to be more than 2 percent of your adjusted gross income, according to the Texas Society of CPAs. Anything spent after that is deductible.

Job search expenses can be deducted as an itemized deduction if you are looking for a position that is in the same line of work you lost or left, whether or not a new job is found. Acceptable expenses (after the 2 percent rule) include paying someone to update, type, print or mail your résumé, and fees to an employment agency or outplacement service. Any travel by air, bus or train, car mileage, hotel costs or meals also may be deductible, as are relocation costs.

Free help and coupons -- AARP Tax Aide offers all taxpayers a no-cost service by trained volunteers. Tarrant County has more than 50 AARP Tax-Aide sites, primarily on certain days in public libraries. Many will have extended hours through April 15. For locations and information call 888-227-7669 or go to www.aarp.org/money/taxaide.

Families earning $42,000 or less a year or members of the military can use the IRS Volunteer Income Tax Assistance program for no-cost tax preparation by trained volunteers. To find a location, call the IRS at 800-829-1040 and ask for a VITA center in your ZIP code.

Free tax forms and software are available through the IRS Web site. Major software preparers also have free software on their Web sites. Also, check for coupons for chain preparers on their Web sites before going to a storefront.

Teresa M cUsic's column appears Fridays.

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