Tax Law Changes: Small Business and Work Opportunity Tax Act 2007

Congress passed the Small Business and Work Opportunity Tax Act of 2007 in late May. This act is designed to provide relief to small business owners by offsetting a portion of the scheduled minimum wage increases. More information is available at the Senate Finance Committee’s website, finance.senate.gov. A summary of the act’s features are listed below:

Favorable Provisions
• Section 179: One-year extension through 2010. Increase in expensing limit and phase-out level.

• Family Partnerships: Married couples can file as a sole proprietorship. Both spouses receive credit for paying Social Security and Medicare taxes.

• S Corporations: Several modifications to maintain tax benefits of being an S Corporation.

• Work Opportunity Tax Credit: Extended until August 31, 2011. Credits to employers who hire disabled veterans and individuals in counties with significant population loss.

• Employer Tip Credit: Employers will receive full tip credit despite minimum wage increases.

• Alternative Minimum Tax: WOTC and Employer Tip Credit can be used to reduce AMT liabilities.

Unfavorable Provisions
• Kiddie Tax: Raises the age to under-19 (under-24 if a full-time student) at which income in excess of $1,700 is taxed at parent’s rate.

• Erroneous Refund Claim Penalty: A new penalty for refunds filed without any reasonable basis.

• Suspension of Interest and Penalties: IRS is able to charge interest and penalties for 36 months after a delinquent tax return is filed.

• Employment Tax Levy Hearings: IRS is no longer required to hold a collection due process hearing before issuing a levy on delinquent employment taxes.

• IRS User Fees: IRS has legal authority to charge user fees.

• Minimum Bad Check Penalty: The minimum penalty for issuing bad checks or money orders to the government is $25.

• Preparer Penalties: Expands preparer penalties to all types of tax returns.