Top tax questions for 2010

Questions about debt, starting businesses and multiple-generation households make it clear that the economy is shaping how people think about taxes.

The following questions (and answers) were among the top searched by taxpayers and tax professionals at the H&R Block At Home online community and The Tax Institute at the H&R Block Web site.

Q: My parents are older and they live with me. Can I deduct their expenses?

A: 16 percent of U.S. families have at least two adult generations living in their household. To be eligible for the benefit, elderly parents and adult children must have less than $3,650 in taxable income. Also, half of all eligible expenses of the parent or adult child must be paid by the taxpayer seeking the deduction.

Q: I took the first-time homebuyer tax credit in 2008. Do I have to re-pay it?

A: The first-time homebuyer tax credit is a hot topic for taxpayers wanting to know who’s eligible and who has to pay it back. Taxpayers who claimed the credit in 2008 must start repaying it this year in annual installments over 15 years. However, taxpayers who claimed the credit in 2009 and 2010 do not repay the credit unless they sell the house or stop using it as their primary residence within three years of purchase.

Q: I bought energy-efficient windows for my home. Can I claim the home energy credit?

A: Worth up to a $1,500 lifetime credit in 2009 and 2010 combined, eligible improvements include external windows and doors, insulation, roofing, HVAC and non-solar water heaters meeting specific energy guidelines. Taxpayers who missed the credit in an earlier year can still claim it in 2011 — but only up to the $500 lifetime limit.

Q: Are my property taxes and mortgage interest tax deductible?

A: Homeowners can deduct property taxes and mortgage interest as itemized tax deductions. Homeowners whose itemized deductions are less than their standard deduction should use the standard deduction, as that will result in lower federal income tax liability.

Q: I’m an entrepreneur who started a business in 2010. Are my start-up costs deductible?

A: Taxpayers who opened a business in 2010 can deduct up to $10,000 of eligible start-up costs, up from $5,000 in 2009. Qualifying expenses include advertising, rent, supplies, taxes and licenses.

Q: I have a full-time consulting assignment. How is my income tracked?

A: Form 1099-MISC is sent to the IRS to report income, royalties and other types of income paid to independent contractors. For independent contractors who work from home,  form 1099-MISC commonly is used to report contractor compensation.

Q: Are my college tuition costs reported to the IRS?

A: Eligible educational institutions submit Form 1098-T to report information about their students to the IRS as required by the Taxpayer Relief Act of 1997. The 1098-T includes the student’s enrollment status, qualified tuition and related expenses, scholarships and grants .

Q: I was married in the summer of 2010. Do I file as single or as married?

A: Marriage, re-marriage and in between can make taxpayers ponder their IRS filing status, which determines tax rates and standard deduction amounts. Filing status for the entire year is determined by the status as of Dec. 31 of the current tax year. The options are single, married filing jointly, married filing separately, head of household or qualifying widow(er).

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