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.