Small Business and Work Opportunity Act of 2007

President Bush signs the new tax bill into law bringing small business tax relief and a long-awaited minimum wage increase.

Along with new tax incentives for small businesses, the new law also includes provisions for individual taxpayers and expanded Gulf Opportunity Zone relief. See how your tax situation is affected. Here are the highlights.
 

more in the works to correct the extension from 2010 to 2011

President Signs Bill to Extend Deductions

On May 25, 2007, President Bush signed into law H.R. 2206, the Small Business and Work Opportunity Act of 2007.  The Act extends the expanded benefits of Section 179 through 2010 and increases the maximum annual deduction from $112,000 to $125,000 for purchases made in 2007.  The amount of annual cost additions that trigger a phase-out of the 179 deduction was  increased from $450,000 to $500,000. This means the $125,000 limit is reduced by the amount by which the total cost of the property placed in service during the tax year exceeds $500,000.  For a detailed description for the Section 179 deduction, see IRS Publication 225, "Farmer's Tax Guide", Chapter 7.
Let Uncle Sam Help  
 
The Honorable Supreme Court Justice Learned Hand instructed the IRS, in a high court decision, that it was not a citizen's duty to conduct himself so as to pay the maximum tax possible, but that a common man might arrange his affairs so as to pay the least amount of tax possible. God bless the judge, and God bless our alpacas and their tax advantages.  Read the full article here. 

 

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 minimum wage will gradually increase from $5.15 to $7.25 an hour over the next three years.

 

Expensing Property


 
You generally must depreciate the cost of property over its recovery period, a period assigned by the IRS. For example, equipment generally is depreciated over five years or seven years, automobiles are depreciated over five years, and rental real estate is depreciated over 27 1/2 years.

 
But the section 179 deduction provision allows you to deduct more depreciation than you can under the usual rules.

 
Section 179 allows taxpayers to expense (that is, write off in one year) up to $108,000 of the cost of eligible business property in 2006. ($143,000 for qualified enterprise zone property, qualified renewal community property you purchase. , and qualified New York Liberty Zone property). For example, qualified section 179 Gulf Opportunity (GO) Zone property acquired after August 27, 2005, the maximum section 179 deduction is higher than the deduction for most section 179 property. For specific instructions, see chapter 2 of IRS Publication 946.

 
If you purchase an electric vehicle for business use, the total depreciation deduction (including the section 179 deduction) you can take is $8,980. This limit is reduced if the vehicle is also for personal use.

 
You can use this deduction even if you purchased the property on the last day of the year, but you cannot use the deduction for property you acquired in a trade, except to the extent you paid cash. Also, this deduction can be used only if you use the property more than 50 percent for business.

 
Bear in mind this deduction is reduced if you purchase more than $430,000 of eligible property for the year. Real property is not eligible for this deduction; however, under the new law, off-the-shelf software purchased for your business may be deducted as well. The deduction cannot exceed your business taxable income figured without regard to this deduction. Business taxable income includes self-employment income and wages and salaries. If you are married and file a joint return, you can take into account your spouse's business income.

 
If you sell the property before the end of its recovery period, you have to include in income the excess of the section 179 deduction you claimed over the depreciation you would have claimed for the time you owned it.

 
When deciding if the section 179 deduction option best suits your needs, consider:
  • your current tax bracket compared to your future tax bracket
  • your need for current tax savings
  • how long you expect to keep the property for which you claim the deduction

 

 

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