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Federal Tax Update: Other Highlights of the Small Business and Work Opportunity Tax Act of 2007

In addition to the enhanced tax preparer penalties discussed in the lead article of this issue, the Small Business and Work Opportunity Tax Act of 2007 (“Act”) also included the following provisions:

  • Kiddie Tax Is Broadened. The Act raised the “kiddie tax” age from under 18 to under 19 (or under 24 if the child is a full-time student), if the child’s earned income does not exceed one-half of the child’s support.
  • FICA Tip Credit Is Not Reduced By Any Increase In The Minimum Wage. The Act froze the federal minimum wage level for calculating an employer’s FICA tip credit. This allows employers with employees who receive “tip” income to receive the full FICA tip credit, despite the increased federal minimum wage.
  • Section 179 Deduction Limit And Phase-out Threshold Amounts Are Increased. The Act increased the amount a taxpayer can deduct under Code § 179 from $112,000 to $125,000. The Act also increased the phase-out threshold from $450,000 to $500,000. Finally, the Act extended the $125,000 deduction and the $500,000 phase-out threshold through tax years beginning before January 1, 2011.
  • Simplified Filing Procedures For Some Family Businesses. An unincorporated partnership or LLC which is jointly owned by a married couple and located in a common law state (such as Nebraska) is now permitted to file as a sole proprietorship. Previously, the business was required to file a separate partnership tax return.
  • The Work Opportunity Tax Credit Is Extended And Expanded. This credit is available to employers for a percentage of wages paid to certain veterans, high-risk youths, ex-felons, and long-term family assistance recipients. Under the Act, the credit has been extended for 44 months by moving the hiring deadline to Aug. 31, 2011. The credit was also expanded to include more categories of veterans.