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Small Business and Work Opportunity Tax Act of 2007

Under the approach being taken by Congress, all new tax benefits passed require a counter-balance in revenue enhancements.

Benefits

  • Section 179 will allow a total of $112,000 in new equipment asset purchases to be completely written off in 2007 under existing law. For all years thereafter through 2010, the amount will increase to $125,000. The allowable expense amounts are reduced in years when total equipment expenditures exceed $450,000 (adjusted for inflation) in 2007 and $500,000 for years thereafter through 2010. The deduction is only allowed when there are taxable profits. The deduction may be carried forward to a non-loss year.

  • The tip credit will continue to be based on $5.15 per hour even though the new federal minimum wage is raised to $7.25 per hour. Thus, employers need only pay a minimum wage of $2.13 per hour to tipped employees even if the employee does not report the tips.

  • The Work Opportunity Tax Credit has been extended through August 31, 2011. In the past, this has been extended piecemeal every year or two.

New Taxes

  • Kiddie Tax Tightening. Prior to 2006, children (13 or under) who received dividends and interest were taxed at their parents' marginal tax rates when their investment income exceed $1,500. In 2006, the definition of a child was raised to under 18 and the investment income amount to $1,700. Under the new law, all children who are under 19 or who are full time students under 24 are affected by the law. However, because the new law does not take effect until tax years beginning after May 25, 2007, the year 2007 is still governed by the present under 18 definition. This presents a final opportunity for advantageous tax planning in 2007. Lastly, students who were gifted appreciated stock in 2002 with the expectation of selling the stock at 0% tax in 2008-2010 will not be able to do so. Please contact us for more information about tax planning for the Kiddie Tax in 2007 and later.

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