President Bush signed the Small Business and
Work Opportunity Tax Act on May 25, 2007. This law
is part of a larger bill that provides funds for
the troops and increases the federal minimum wage
over a two-year period to $7.25.
To help offset the cost of the increased
minimum wage, the law provides a number of tax
breaks for businesses. Some individual taxpayers
may find their tax bills are increased by the
revenue raising portions of the law.
Here's a brief overview of the tax changes:
* The limit for the Section 179 election to
expense business equipment purchases is
immediately increased from $112,000 to $125,000,
with the phase-out amount increased from $450,000
to $500,000.
* The Work Opportunity Tax Credit for hiring
certain disadvantaged workers was set to expire at
the end of 2007. The new law extends the credit
through August 31, 2011, and broadens the credit
to include more veteran groups.
* The FICA tip credit will continue to be based
on the old $5.15 minimum wage even though the
minimum wage increases to $7.25 an hour.
* Married couples who jointly operate an
unincorporated business and who file a joint
return may elect not to report their income as a
partnership. Instead of filing a partnership
return, they can each report their income on
Schedule C of Form 1040.
* The age limit for the "kiddie tax," the
taxing of a child's unearned income above a
certain amount at the parents' higher rate, is
increased from age 18 to 19.
* For full-time students, the kiddie tax will
apply until age 24. This change is effective for
tax years beginning after May 25, 2007 - which for
most taxpayers means the change will become
effective in 2008.
* Among other provisions in the law are tax
incentives to help taxpayers recovering from
Hurricane Katrina and some S corporation changes.
If you would like to review how these recent
changes might affect your business and personal
tax planning, give us a call.
