The April 15 deadline is looming for last-minute income tax filers across the nation.
Mellody Hobson, "Good Morning America's" personal finance expert and president of Ariel Investments, appeared on the show and shared some tips for people who are scrambling to finish their taxes, and answered some questions submitted by viewers:
Q: Ernesto in Houston asked: "I owe the IRS money, but can't afford to pay it right now. I already have an installment agreement in place. How many can you have at one time?"
A: Hobson said you can agreement to pay the IRS what you owe in small amounts for up to 5 years, and you can only have one installment plan at a time, but you may be able to re-structure your existing agreement to include your most recent debt.
You'll probably have to complete a collection information agreement with details about your situation. If the IRS agrees to change your payment plan, you'll have to pay a $45 fee to make the changes, she said.
Q: Victoria from Fort Collins, Colo., wrote: "I was married all of last year up until mid-November. Can I claim married filing single or do I have to claim single for the year?"
A: More than a million divorces happen every year, Hobson said, so it's important to know how it affects your tax filing status.
Your marital status on Dec. 31 determines your filing status for the entire year. Since Victoria was divorced before the end of the year, she would file an individual tax return, Hobson said.
For someone who claims "married filing separate" status, there are certain benefits. First, the IRS will not hold you responsible for any unpaid taxes that are due to the actions of your partner. Also, if you file jointly, you could be partially responsible for what your partner owes, Hobson said.
But there is a drawback. If you claim "married filing separate" status, you can't claim certain deductions and credits that are available to married couples.
Another important issue divorcing couples must consider is alimony and child support. Parents who receive child support payments don't pay taxes on them, but the payments aren't deductible for the parent who is writing those checks, Hobson said.
Mellody Hobson Answers Questions for Last Minute Income Tax Filers
It's the reverse for alimony, though.
Alimony is considered income and it is taxable, and the payer can get a deduction as long as long as the payment adheres to certain stringent guidelines. Otherwise, it's not deductible.
Q: Joe from Elmont, N.Y., submitted a question by Skype. He asked about the Making Work Pay tax credit, if he is eligible and how he could claim it.
A: The Making Work Pay tax credit comes from the 2009 federal stimulus plan. It's available for 2009 and 2010 only, and provides a credit of up to $400 for individuals and $800 for married taxpayers who file joint returns.
You're eligible if you are a U.S. citizen or legal resident with a valid social security number. Your possible credit is reduced if you make more than $75,000 as a single filer or $150,000 as a joint filer, and you won't get the credit at all if you make more than $95,000 as an individual filer or $190,000 as a joint filer.
If you receive a paycheck and pay withholding taxes, the credit may already have been paid to you directly through an adjustment in the withholding taxes paid by your employer. If you don't have taxes withheld, you can still get the benefit on your tax return.
Either way, you must claim the credit on your tax return, Hobson said. It's Schedule M, and it can be found on the IRS' Web site, along with instructions for exactly how to file it.
Q: Jeanne from Pflugerville, Texas, is helping her daughter , a single mother of three, prepare her taxes. "With the recession, she did not work very much and would not be receiving very much earned income. Is earned income based on your earnings?"
A: To the IRS, earned income comes from more than just your paycheck. Earned income includes wages, salaries and tips, union strike benefits, long-term disability benefits received before retirement age, and net earnings from self-employment.
Hobson said there are other forms of income that are not considered "earned" but which may be taxable. For example, alimony and unemployment benefits are taxed at ordinary income rates, as are investment dividends and withdrawals from pensions or 401(k) plans.
Jeanne should consider that more than 20 million filers claim the Earned Income tax credit, but another five million who are eligible don't get it, Hobson said.
If Jeanne's daughter's earned income was less than $43,279, the children's mother may be eligible for a credit of up to $5,657, Hobson said. It could possibly even result in a refund for her. Eligibility requirements and credit calculation information are available on the IRS' Web site.
Q: Ann in Rochester, N.Y., started her own business in 2009. She wrote: "I did not make any money but had expenses to get the business started. Do I still need to file and what form should I use?"
A: If Ann had earned even $400 from her business, she would have needed to file a return using for 1040, Schedule C, Hobson said. If she wants to deduct start-up costs, she would need to file a return.
Hobson also said you can deduct up to $5,000 of start-up costs. Go to the IRS' Web site and read publication 535 for details.
• If you can, try and file electronically. It will save you time, it could prevent errors, and you will get your tax refund faster. Some software packages may even help you to identify deductions you may not have even known about.
• If you decide to file for an extension, this does not mean you have more time to pay your taxes. You must still pay your taxes by April 15. If you plan to file for an extension, estimate what you think you will owe and then send it to the IRS. If you cannot pay your taxes on April 15, then you may want to consider payment options with the IRS.
• Free tax preparation services are available to low-income filers, the elderly and military personnel. Check out the IRS website at www.irs.gov for more information.