The Small Business and Work Opportunity Act of 2007

Added 08/08/07

The newest tax legislation signed on May 25, 2007 provides nearly $4.8 billion in tax incentives for small business and some off setting increases for individual tax payers. The effective dates vary through out the act, some being retroactive to January 1, 2007.

The Work Opportunity Credit, set to expire December 31, 2007 was extended through August 31, 2011. It was also expanded to include veterans with a service connected disability and are unemployed for any six months during the twelve months before being hired. The qualified wages for the veterans is $12,000. Other target groups’ qualified wages are $6,000. Work Opportunity Credits are allowed against Regular Income Tax and Alternative Minimum Tax.

Code Section 179 dollar limit is increased to $125,000 for 2007. The purchase limit is increased to $500,000. The amounts will be adjusted for inflation through 2009. The 2007 limits had been $112,000 and $450,000. In 2010 the amounts will revert to $25,000 and $100.000.

Family business tax simplification, by no longer requiring a husband and wife who co-own and operate a business to file a partnership return. A Separate sch C or F would be required for each spouse to reflect their appropriate ownership. This is effective for periods beginning after 2006. This is now an election for unincorporated business only. Please study and understand this provision and all of the tax issues it effects before making a hasty election.

Subchapter S Provisions of The Small Business and Work Opportunity Act of 2007 apply to tax years beginning after May 25, 2007. Any capital gain from the sale of stock will no longer be considered passive investment income at the corporation level. Passive investment income for the imposition of the highest level of corporation tax on S corporation excessive passive income will only include interest, dividends, rents, royalties and annuities. Any S corporation with Earnings and profits before 1983 may re-categorize them as AAA.

The Kiddie Tax was changed in 2006 to increase the age at which this tax ended from under 14 to under age 18. The Small Business and Work Opportunity Act of 2007 changes the age again. Beginning in 2008 the kiddie tax will apply to children under age 19 and to full-time students under age 24. If a student is over 18 and earns over one half of the student’s support the student is exempt from the Kiddie Tax.

This will not be the end of tax legislation for 2007, I’m sure it’s just the first of many changes we’ll see this year.