Guest Column Tax changes are mostly good news for small business BY NORMAN G. GRILL JR.

Guest Column
Tax changes are mostly good news for small business
BY NORMAN G. GRILL JR.

On May 25, President George W. Bush signed the Small Business and Work Opportunity Tax Act of 2007 (SBWOTA). Passed in conjunction with legislation to continue funding the war in Iraq and to raise the minimum hourly wage, the tax-related provisions are designed, in part, to provide benefits to small businesses likely to be hit hard by the minimum-wage increase.

Following are highlights of key provisions affecting businesses and individuals, as well as Gulf Opportunity (GO) Zone incentives and other areas of tax law.

Businesses

The Section 179 election to expense property in its initial year (rather than depreciate it) is extended through 2010 and increased from $100,000 to $125,000 in tax year 2007. The expense deduction begins to phase out if more than $500,000 of eligible property is placed in service during the year (up from $400,000). These amounts will be adjusted for inflation annually.

The Work Opportunity tax credit, which had been set to expire Dec. 31, 2007, is extended until Sept. 30, 2011. This credit is available to businesses that hire employees from targeted groups, such as veterans, ex-felons, high-risk youth, and food-stamp and supplemental-security-income recipients. The new law expands this list to include disabled veterans and individuals in counties that have suffered significant population losses. If you hire a target employee, your business can receive a 40 percent tax credit for the first $6,000 paid to that worker.

The individual and corporate alternative minimum tax (AMT) limits on the use of certain credits are waived, effective for years after 2006 as well as for carryback of these credits. This applies to the Work Opportunity credit and to the credit for taxes paid on employee tips. Employers are also now eligible for the full-tip credit despite the increase in the minimum wage.

SBWOTA includes certain S corporation and pension provisions, but they are too obscure and technical to cover here. Contact your tax advisor to see whether any of these changes affects your tax-planning strategies.

Individuals

The new law also affects some individual taxpayers. The “kiddie tax,” which subjects children (and now young adults) to tax on most unearned income at their parents’ marginal tax bracket, had recently been expanded to include those under 18 (up from 14). Now, SBWOTA broadens that rule to include those who qualify as dependents because they are either under 19, or under 24 and a full-time student, if their earned income doesn’t exceed one-half the amount needed for their support.

GO Zone incentives

In addition, SBWOTA extends several tax incentives designated for the GO Zone:

• The increased Section 179 expense election, which is generally doubled for qualifying property, is extended through 2008.

• The low-income housing tax credit for GO Zone housing is extended through 2010.

• Tax-exempt bond financing for GO Zone property is expanded to include expenses for all repairs and reconstruction. The provision applies to owner financing provided after May 25, 2007, and before 2011.

Other changes

Finally, the act subjects tax-return preparers to increased levels of penalty for the redefined category of “unreasonable positions” taken on a tax return, as well as for the category of “willful and reckless” tax positions. The legislation also makes changes in the pension area, as well as numerous other minor changes and technical corrections.

This has been a general discussion and is not intended as advice to anyone. Always consult your tax advisor about your particular circumstances.

Norman Grill Jr., CPA, (N.Grill@GRILL1.com) is managing partner of Grill & Partners L.L.C. (www.GRILL1.com), certified public accountants and consultants to closely held companies and high-net-worth individuals, with offices in Fairfield and Greenwich.

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