Tax Tips & Calculators

Along with new tax incentives for small businesses, the Small Business & Work Opportunity Act of 2007 also includes provisions for individual taxpayers and expanded Gulf Opportunity Zone relief. See how your tax situation is affected. Here are the highlights.

Small Business Tax Incentives

• Section 179 Expenses — Beginning in 2007, the maximum expense amount is increased from $100,000 to $125,000. Keep in mind, the expense deduction begins to phase out if more than $500,000 of eligible property is placed in service within the year (up from $400,000). Learn more about the Section 179 Deduction.
• Family Business Tax Simplification — A Qualified Joint Venture is no longer treated as a partnership. It is an unincorporated business owned solely by a husband and wife in which both spouses participate. Both spouses report income and expenses and pay self-employment tax. Therefore, each partner will now file separate Schedules C and SE as sole proprietors. This change is in effect after 2006.
• Increased Minimum Wage — The mimimum wage will gradually increase from $5.15 to $7.25 an hour over the next 3 years.

Gulf Opportunity Zone (GO Zone) Relief

• Section 179 Expense — The increased Section 179 expense election is extended through 2008 for businesses affected by the 2005 Gulf Coast hurricanes. Generally, the deduction is doubled for qualifying property.
• Low-income Housing Credit — The tax credit granted to GO Zone low-income housing is extended through 2010. Beginning in 2007, community development block grants are not considered when determining if the buildings are federally subsidized.
• Tax-exempt Bond Financing — This has been expanded for GO Zone property to include expenses for all repairs and reconstruction. Tax-exempt bond financing applies to owner-financing provided after May 25, 2007, and before 2011.

Individual Provisions

Kiddie Tax Expansion — Effective beginning tax year 2008, the Kiddie Tax rules have been expanded to include unearned income received by a child who is younger than 19 or younger than 24 and a full-time student, and whose earned income is less than half of his or her support. The Kiddie Tax does not apply to income received by an adult disabled child.

Work Opportunity Tax Credit — In addition to being extended through Aug. 31, 2011, the Work Opportunity Tax Credit also has the following changes.

• The maximum age of a "designated community resident" (formerly "high-risk youth") is increased from age 25 to age 40.
• Eligible communities have been expanded to include counties that experienced a net population decrease during 1990 to 1994 and 1995 to 1999.
• The definition of eligible employees is expanded to include disabled veterans entitled to service-connected disability. The veteran employee must have been unemployed at least six months in the last 12 months or discharged from the service no more than one year prior to being hired.
• For tax years after 2006, the credit is allowed for Alternative Minimum Tax (AMT) purposes.

Taxpayer Penalties — There is a new civil penalty for unreasonable and false refund claims (other than claims related to the Earned Income Credit). The penalty is equal to 20% of the overclaim.

The minimum penalty for bad checks and money orders paid to the IRS is increased from $15 to $25. This applies to payments less than $1,250 (up from $750).

Penalties and interest on underpayments are suspended if the IRS fails to notify you within 36 months (used to be 18 months) beginning the later of the date the return was filed, or the original due date of the return.