Dear Client:

Once again, it’s time for year-end tax planning. Over the past year, Congress, the IRS, and the courts have flooded us with significant tax developments. The White House has also warned of imminent tax increases, particularly for higher income taxpayers. Collectively, these changes make year-end tax planning for 2009 more important than for any year in recent history! Most recently, Congress passed the American Recovery and Reinvestment Tax Act of 2009, which includes the following individual tax benefits: an increased refundable first-time home buyer’s credit of up to $8,000 (which expires after November 30, 2009, unless extended by Congress); estimated tax payment relief for certain individuals owning small businesses; a deduction for sales tax on the purchase of new vehicles; an increased and partially refundable tuition tax credit (up to $2,500); a refundable income tax credit to offset payroll taxes of low and middle income individuals; a significant expansion of various credits for energy-efficient home improvements; and alternative minimum tax (AMT) relief. As expected, many taxpayers have been scrambling to keep up with all of these important, and often temporary, tax changes.

We are sending you this letter to help you navigate through the many new tax planning opportunities available to individuals under these new provisions. We also want to remind you of the traditional year-end tax planning strategies that 1) help ensure your income is taxed at the lowest possible rate, and 2) will postpone taxes by deferring your taxable income and accelerating your deductions. Caution! Several of the most significant new tax breaks expire in 2009 (and others in 2010). So, it is extremely important that you be proactive and act timely to obtain maximum benefits! Tax Tip. Even though the recent recession has caused many individuals to experience a significant drop in income for 2009, this drop in income may actually produce additional tax benefits. If your income is down for 2009, you may be eligible for deductions and credits that you did not get in previous years because your income exceeded the phase-out thresholds. So, you should pay close attention to the income thresholds for the various deductions and credits discussed in this letter. With informed year-end planning, you may now qualify for tax breaks that were not available in the past because of your higher income.

Planning Alert! Tax planning strategies suggested in this letter may subject you to an unexpected alternative minimum tax (AMT). For example, many deductions are not allowed for AMT purposes, such as: personal exemptions, certain standard deductions, state and local income taxes, and real estate taxes. Also, AMT can be triggered by taking large capital gains or exercising incentive stock options. Therefore, we suggest that you call our firm before implementing any tax planning technique discussed in this letter. You cannot properly evaluate a particular planning strategy without calculating your overall tax with and without that strategy. Please Note! This letter contains ideas for Federal income tax planning only. State income tax issues are not addressed.


Matthew B. Hitt, CPA

2009 Year-End for the Individual