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Small Business Work Opportunity Act of 2007

Federal Minimum Wage Increase – from $5.15 to $7.25

Effective Date:

  • July 24, 2007 = $5.85
  • July 2008 = $6.55
  • July 2009 = $7.25

Individuals

Kiddie Tax

The kiddie tax is expanded to apply where:

  • The child turns age 18, or if a full-time student is under age 24, before the close of the tax year.
  • The child’s earned income for the tax year doesn’t exceed one-half of his or her support
  • The child has more than $1,700 of unearned income (this amount is adjusted annually for inflation).
  • The child has at least one living parent at the close of the tax year.

This discourages the practice of transferring investments to one’s child for the purpose of avoiding higher tax rate. For the calendar year taxpayers, the new kiddie tax rules first go into effect for the 2008 tax year.

Business Deductions

Section 179 Expense Deduction

For 2007, the deduction limit and phase-out threshold amount are increased to $125,000 and $500,000, respectively.

Partnerships and S Corporation

Husband and Wife Joint Venture

If a qualified joint venture is conducted by a husband and wife who file a joint return for the tax year, the joint venture is not treated as a partnership for tax purposes.

All items of income, gain, loss, deduction, and credit are divided between the spouses according to their respective interests in the venture and each spouse takes into account his or her respective share of these items as if they were attributable to a trade or business conducted by the spouse as a sole proprietor. Each spouse will report his or her shares on the appropriate form, such as Schedule C, E, or F

This ensures that both spouses receive credit for paying Social Security and Medicare taxes.

A qualified joint venture means any joint venture involving the conduct of a trade or business if:

  • The only members of the joint venture are a husband and wife.
  • Both spouses materially participate in the trade or business under the passive loss rules without regard to the rule that treats participation by one spouse as participation by the other.
  • Both spouses elect the application of this rule.

Effective for tax years beginning after December 31, 2006.