Small Business and Work Opportunity Tax Act of 2007: Analysis and Tax Planning Opportunities

The Small Business and Work Opportunity Tax Act of 2007, which includes the U.S. Troop Readiness, Veterans' Care, Katrina Recovery and Iraq Accountability Appropriations Act of 2007, expands and extends many small business tax relief provisions. The Small Business Tax Act also includes some surprising revenue raisers. Taxpayers and tax practitioners should assess the impact the Small Business Tax Act will have on the preparation of 2007 tax returns and tax planning strategies for 2007 and beyond. The Small Business Tax Act is designed to help businesses faced with increased wage costs from the increase in the minimum wage to $7.25 over the next two years, and to offer tax incentives to help taxpayers living in the gulf states rebuild from the damage caused by Hurricane Katrina. Under the current Congressional "pay-go" rules the estimated revenue cost of the act is offset with some unexpected revenue raisers. Provisions relating to the extension of the "kiddie tax," payment of self-employment tax by married couples, and changes to certain penalty provisions offer tax planning opportunities and potential tax traps.