President signs Small Business Tax Act of 2007

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 in-creased from $450,000 to $500,000.

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.

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 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.

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.