Dear Client,   It’s time to get geared up for another exciting tax season. We thank you for the opportunity to serve you last tax season and we look forward to serving you again this year.   There are a lot of exciting new developments for this tax season. The difficult economy again initiated tax changes and expanded some tax credits and deductions. Some of the important changes that may benefit you for your 2009 tax return are discussed below.   The American Opportunity Tax Credit replaces the Hope Scholarship Credit for 2009 and 2010, and now applies to the first four rather than the first two years of a student's post-secondary education. The maximum credit is increased to $2,500 per eligible student. In addition, the cost of books, supplies, computer equipment & technology, and internet access costs are now included along with the tuition costs in order to determine the education tax credit.   For those that do not always itemize, real estate taxes paid of up to $1,000 is still available as an add-on to your standard deduction.  This deduction was set to expire December 31, 2009.    The much talked about tax credits for purchases of your first time homeowners’ credit is available, in some cases the tax credit is up to $8,000.    If you purchased a qualified new vehicle between February 17, 2009 and December 31, 2009, you may be able to deduct the sales tax you paid regardless of whether you itemize. So remember to notify us of sales tax you paid on your new car.    A credit is available for qualified plug-in electric drive motor vehicles (PEDMVs) placed in service in 2009 through 2014. The maximum PEDMV credit is between $7,500 and $15,000 depending upon the weight of the vehicle.   A new credit is available for converting an existing motor vehicle into a qualified PEDMV. The maximum credit of $4,000 applies to conversions made after February 17, 2009 and before December 31, 2011.   The new plug-in electric vehicle credit (PEVC) is modeled on the PEDMV credit, and provides a credit equal to 10% of the cost of acquiring certain electrically powered 2-wheeled, 3-wheeled, and low-speed vehicles. The PEVC is capped at $2,500, and generally applies to vehicles purchased after February 17, 2009 and before January 1, 2012.   Don’t forget, all cash contributions to any qualified charity must be supported by a dated bank record or a dated receipt. For contributions of household items and clothing made, no deduction is allowed unless the donated property is in good used condition or better, and you have a dated receipt from the charity.   Business mileage was at 55 cents per mile for all of 2009.  Beginning January 1, 2010 it drops back to 50 cents per mile.   For those that received unemployment income in 2009, the first $2,400 will be excluded from income for tax purposes.   POLICY CHANGES DUE TO IRS CRACKDOWN!!    The IRS believes that taxpayers are not paying all the taxes they owe. The difference between the amount everyone pays and amount the IRS wishes that everyone would pay is called the “Tax Gap.” In an effort to get some of this money, the IRS is cracking down on everyone. The national audit rate is higher than it has been in over ten years! Here are some specific danger areas and ways we can work together to avoid them:   “SAME AS LAST YEAR” NOT GONNA FLY: Some of you (you know who you are!) always tell us that your expenses are “the same as last year.” Just to give you fair warning, this is not going to work. If your expenses actually were very similar to last year’s expenses, please do your tax preparer a favor and take the time to look over your last year’s tax return and verify these amounts. If you don’t make some effort to keep track of your records and expenses, don’t be surprised if your tax preparer politely tells you to go over your records and come back when you are ready. We love all of you, but none of us at Bailey & Thompson want to pay $1,000 in fines to help you make up numbers on your taxes. “Guesstimations” are one thing, and if it’s reasonable, we’ll always try to take your word for it. But if someone is going to expect us to make up numbers for them—we recommend TurboTax.   EARNED INCOME CREDIT: According to the IRS, the Earned Income Tax Credit (EIC) is one of the most abused tax credits in existence. Because of this, the IRS is requiring that tax preparers “go the extra mile” verifying your tax information, if you get the Earned Income Credit. Please don’t be surprised or offended if your tax preparer asks you some frank questions concerning your dependents or self-employed income this year. Your answers are between you and God. J Our questions, however, are required to avoid nasty penalties for you and us, the tax preparers! Thanks for understanding.   Whether you choose to submit your tax return to us in person or from your home or office, we're pleased to offer you all our services including Electronic Filing and Refund Anticipation Loans.  You can also learn about our other services through our website.    For your convenience, we would be happy to email, fax, or mail you a copy of your tax organizer. Your tax organizer includes tax information you reported last year which will help you gather the necessary documents for 2009.     As we strive to serve you better and make this the best year ever, we invite you to contact us at your earliest convenience to set an appointment.   Also, should you have any questions or need directions to our office, please do not hesitate to call us at (501) 562-7679 or email us at tax@baileythompson.com.   Bailey & Thompson Tax & Accounting PA