I am often asked if there is anything new in tax law this year. Usually my reply is that there is nothing significant - just the usual indexing of the amounts to inflation. But not for 2009! I can’t remember a year since the big tax reform act of 1986 that there have been so many changes to deal with. I’ll outline a few of these changes below.

When is a standard deduction no longer standard? Answer - when you use New form Schedule L to adjust your standard deduction to claim allowable state and local real estate taxes paid and/or state or local sales or excise taxes paid on new vehicles purchased after February 16, 2009. This new Schedule L is used for those who do not have enough to itemize their deductions and file the form Schedule A. Note that it can also be used even if you are filing the short form 1040A - which by the way ain’t so short any more!

When is it a good time to have earned income? Answer - when you can file new form Schedule M, Making Work Pay Credit to compensate for the reduced withholding of income taxes from your paycheck. This one is a biggie! It’s worth up to $400.00 for each spouse, so don’t miss it! Self-Employed taxpayers also will benefit, assuming that they have a net profit from their business activities.

When is a first time home buyer not a first time home buyer? Answer, when you use modified form 5405 to claim the existing home buyer credit. The first time home buyer credit is still available and for those who are eligible is worth $8,000.00 as a tax credit. The existing home buyer credit is for those who have lived in their current home for 5 out of the last 8 years (both spouses must meet this requirement if married) and for those who are eligible is worth $6,500.00 as a tax credit.

When is it a good year to make energy improvements to our home? Answer - 2009 and 2010. The old energy saver tax credit expired at the end of 2007 and was not available for 2008, but is back and is bigger and better for ‘09 and ‘10. Form 5695 is used to claim these credits. But be cautious! Not all energy savings items qualify! They must meet stringent Energystar requirements and you have to have the certificates from the manufacturers to prove it! The best source of information on this is the website www.energystar.gov. Then scroll down to the lower left side and click on the “1040 Tax Credits for Energy Efficiency” icon. Then review each catagory and make absolutely certain that what you purchased qualifies before you attempt to claim this credit.

When is it a good time to draw unemployment compensation? Answer, in a year when the IRS allows you to omit the first $2,400.00 per recipient of unempoyment income from taxes! This is a real break for those who drew unemployment compensation.

When does the Kiddie Tax apply to Adults? Answer - when you have a dependent child with investment income above $1,900.00 - if the child is younger than 24 years old. The cut off for this onerous tax used to be age 14, but now it can possibly apply to your dependents through age 23. See form 8615 to work through this masterpiece if you think that this may apply to you.  

When is it a good time to have that third child? Answer - when the IRS expands the Earned Income Credit for those with three children and also allows higher income limits - see Schedule EIC for this credit.

When is it a good time to pay college tuition? Answer, when the IRS expands the education credits! The old Hope Credit has been improved and is now known as the “American Opportunity Credit”.  The credit for college costs is increased to $2,500 for 2009 and 2010, covering 100 percent of the first $2,000 of tuition and related expenses per year and 25 percent of the next $2,000. The credit is available for all four years of college, up from only two years, and also covers the cost of books. There are income limits, so be sure to review the modified Form 8863 for the details. The bill also allows tax-free distributions from Section 529 College Savings Plans to cover computer purchases.

There are even more changes, some of which will benefit only small businesses - too lengthy to go into on this blog, so call me for more information if you need to!

IRS statistics indicate that about two thirds of taxpayers claim the standard deduction on their tax return each year. This means that they do not itemize, or list out, things like mortgage interest, real estate taxes, charitable contributions, or medical expenses on IRS form Schedule A.

If you’re one of these taxpayers and you claim the standard deduction amount this year, you could be missing out on a new deduction for real estate taxes that you paid in 2008. Starting this year, the IRS allows you to write off up to $1,000 of real estate taxes you paid on property you own that was not used for business purposes, even if you do not itemize any other deductions.

Keep in mind that if your real estate taxes were paid from an escrow account by your mortgage holder, you still paid them and qualify for the deduction. Also, if you bought or sold a home in 2008 the real estate taxes may have been pro-rated and paid at the closing, so don’t forget about taxes that you paid this way.

You can even claim this deduction even if you file the short form 1040A, but leave it to the IRS to make it tricky and easy to overlook. You claim this deduction by completing a new worksheet that recalculates your standard deduction amount and increases it by the amount of real estate taxes you paid in 2008, up to the limit.

You cannot claim this deduction if you file the 1040EZ form, so you will need to file either the short form 1040A or the long form 1040. Taxpayers in the 15% tax bracket who overlook a $1,000 deduction will cost themselves $150 in tax. Those in the 25% tax bracket will cost themselves $250 in tax - real money in today’s troubled economy.

Picture yourself swinging a sledge hammer all day and breaking rocks. Doesn’t seem like it would be a very pleasant experience, does it? Someone once asked me, “what would you do to absolutely, positively insure the success of your own business? How hard would you work? Would you break rocks day after day if you knew that doing it would insure your ultimate success? Or would you get lazy and quit breaking rocks and just hope for the best?”

I had a few thousand C L Wilson Income Tax Service sales flyers printed up to distribute. I’ve mailed them to all of our current clients and asked them to recommend us to other people. That was the easy part.  Well, today I went out and started breaking some rocks. I drove my car to a few local subdivisions and apartment complexes, parked the car, got out and started walking with bundles of flyers in my hands. I placed them in newspaper boxes. I had a really good day volume wise, placing over 300 of them today. But I got yelled at by an apartment manager dude - “no soliciting!” I didn’t think this qualified as soliciting. I didn’t talk to anybody, didn’t ring any doorbells, didn’t pester anyone. I just put flyers in paper boxes.  Then in one subdivision I got barked at and almost chased by three dogs that were loose. They ended up being friendly, thank goodness.

Tomorrow I plan to break some more rocks. Why? Well, partly because we’re not yet busy doing tax returns, so I have the time.  And I just feel like I need to be doing something productive - even if it’s not the most pleasant thing. You have to put effort into making any business grow. Maybe I’ll be able to track how much new business we get as a result of placing our sales flyer in paper boxes - and I’ll know that it was worth it.

I started preparing income tax returns on a part-time basis in 1987 (preparing tax year 1986 returns) as a way to make a little extra money. I retained my full time day job - you know the drill - because of  health insurance for the family, 401K plan, paid vacation, etc. As I gained more and more clients and was struggling to keep up, my lovely wife Blanche joined me in the tax preparation business in 1991, also part-time at first. Blanche quickly established herself as a first rate business woman and professional income tax preparer, and soon she was full time in the tax preparation business! I kept my name on the sign out front, because I started the business - but soon it was really me helping Blanche during the busy tax preparation season. We were very blessed and our client base continued to grow, consuming just about all of the hours we had available between us. We stopped advertising years ago because word-of-mouth referrals kept us busy.

Every year I would ponder the possibility of me going full time and dream of what it would be like. I truly love this business! I love meeting and working with my clients. I love coaching and educating clients on how to squeeze every legitimate dollar out of the IRS. I love the positive feedback our clients give us. “I’m glad we found you”, they’d say. “We used to go to one of the “big-box” chains, but no more! We feel that you’ve done a much more thorough job - we understand our taxes much better - and you charged us so much less! We’ll see you again next year!” And every year I would struggle again with the going full-time thoughts, but once again defer to the day job. I was just not brave enough to make the leap.

Well, you probably have guessed where this is heading. Due to the horrible economy we’re in my former employer decided to “eliminate my position due to an organizational restructuring”. Yep - after 23 1/2 years of service, I have been downsized. “Don’t take this personal”, they said. “This isn’t about you - it’s your position that’s being eliminated.” Yea, Right. Both my position and me are gone. My last day of employment was December 5, 2008.

After a few minutes - literally - of nursing my bruised ego, the excitement began to build. Actually, the timing couldn’t be better. We’ve not advertised in years, so I don’t have any up-to-date ads ready. We really need new business cards. I need to check with the local newspaper about advertising - and maybe the radio stations too. And my technology partner (who also happens to be my son) has been pestering me to establish a web site. These things will take time to get ready. How much time? Well, from December 5 until the middle of January should be just about right! So, look for my ads, fliers, etc. starting around the middle of January! And check back in on this web site to see how things are going. I’m full time now! I have plenty of available time to help new clients. Also, that very bright and personable son of mine (Stefan) just completed an income tax preparation class in anticipation of helping us out a bit this year anyway! So really, there are two more of us available to help new clients now than there was previously. Phenomenal timing. NO LIMITS! IT’S TIME TO GROW!