The Tax Nag®      KEY PROVISIONS OF THE 2007 SMALL BUSINESS ACT

by J. Kenneth Nowell, CPA

WARNING - THIS IS NOT A COMPLETE LIST OF SAID CHANGES TO THE TAX LAWS, ONLY THOSE THAT THE AUTHOR FOUND INTERESTING.

1.  The Kiddie Tax - not just for kiddies anymore!  Gee, it seemed like only last year when kids under 18 were  subjected to the kiddie tax that was previously only subject to those under 14.  That's because it was only last year that the age was increased!  Well, it's happening AGAIN!!!  Now, if your kid qualifies as a dependent, it pretty much means he or she is subject to the tax!  This includes college students under age 24.

What is the kiddie tax?  It is basically a rule which states that when a child (at least it used to only apply to children) has more than $1,700 in investment income, the excess is taxed at the parents' top marginal rate.  The obvious intent is to further reduce the incentive for placing after-tax investments in the names of your children.  Keep two things in mind.  If you are planning to apply for Federal student aid, you won't want to have assets in the child's name.  And if you don't think you'll be eligible for grants, you have alternatives for college investment such as Coverdell plans and Section 529 plans, whose growth is tax-free, as long as the funds are used for their intended purpose.

2.  Relief for the "Mom and Pop" business.  A business that is jointly owned by a husband and wife (filing jointly) may now file a Schedule C as a part of their 1040.  This can be a savings for such couples, for up until now, they would've had to file a separate Form 1065 for their partnership, which usually increases the overall filing cost.

CAUTION - for one thing, this does not specifically address how to handle LLCs.  If the LLC is being taxed as a partnership, you may be clear to make this election.  Also not addressed yet is whether income can be apportioned in a manner other than strict apportionment based on percentages of the business owned by each spouse.  For example, it is common for one spouse to have "guaranteed payments" to reflect additional time spent on business matters.  STAY TUNED!

3.  Extension of Section 179 expense.  The maximum Section 179 allowance is increased to $125,000 for the 2007 tax year (with an increase in allowed new assets before phaseout to $500,000).  These new limits will apply through 2010.

4.  Shelter of the FICA tip credit - by keeping the base amount of compensation at the old Federal minimum wage of $5.15.  This is especially valuable in states like CT, where the state minimum wage is much higher, and effectively makes most FICA taxes paid by the employer on tips is subject to a full credit.

5.  Extension and enhancement of the Work Opportunity Credit and GO Zone incentives.