Section 179 Election
Work Opportunity Tax Credit
Alternative Minimum Tax (AMT) Limits
Kiddie Tax
Other

Businesses - The Section 179 Election

The Section 179 Election to expense property in its initial year (rather than depreciate it) is extended through 2010 and increased from $112,000 to $125,000, effective for years beginning after 2006. 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.

Work Opportunity Tax Credit

The Work Opportunity tax credit, which had been set to expire Dec. 31, 2007, is extended until September 30, 2011. This credit is available to businesses that hire employees from targeted groups of individuals, 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% tax credit for the first $6,000 paid to that worker. 

Alternative Minimum Tax (AMT) Limits

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 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.

Individuals - "Kiddie" Tax

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 age 18 (up from age 14). Now, SBWOTA broadens that rule to include those who qualify as dependents because they are either under age 19, or under age 24 and a full-time student, if their earned income doesn’t exceed one half of the amount needed for their support.

Other Tax Developments to Mention

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. SBWOTA includes certain S corporation and pension provisions, as well as numerous other minor changes and technical corrections. Please consult your tax advisor to ascertain whether any of these changes affect your tax planning strategies.

If you have any questions concerning the tax issues discussed here, please contact us at info@marg.com.