If you have a small business, do you know there are new wage and
tax law changes that may affect your business? On May 25, 2007, the Small Business and Work Opportunity Tax Act of
2007 was signed into law as part of a much larger bill
that provides funds for the troops and increases the federal minimum wage.
First, let’s talk about
the increase in minimum wage. It’s the first increase since 1997. The new
minimum wage will be raised, in increments, to $7.25 an hour. The first
increase, from $5.15 to $5.85 an hour, will take effect July 24. The next
increase, to $6.55 an hour, will take effect July 24, 2008. The final increase
will take effect July 24, 2009. So if you have employees at minimum wage, be
sure that their pay on July 24th matches this new increase.
Over 30 states have minimum wages higher that the federal already. Here’s a
website to check out how your state interacts with federal wage amounts.
New Federal Minimum Wage – Interaction with
With this year’s
increase, a minimum wage worker will receive almost $1,500 more a year. And when
the new rates are fully implemented, the total difference between the old and
new annual salary for a person on minimum wage will be more than $4,300. And
these pay increases will impact small businesses like yours.
The Small Business and Work Opportunity Tax Act of
2007 is designed to offset the impact of these wage
changes on your budget. Here are the top two items to help your
§ Increases and extends Section 179
With Section 179, you
can expense purchases in the current year instead of “depreciating” the cost
over several years. With this new tax act, you can deduct $125,000 of property
for 2007, including off-the shelf computer software. Also, this higher amount
of Section 179 expenses has been extended through 2010. So you now have more
certainty when planning future business purchases.
§ Broadens and extends Work Opportunity
Tax Credit (WOTC)
encourages employers to hire individuals from various economically challenged
populations. The credit is a percentage of wages paid during each of the first
two years of employment of persons who fall into one of eight categories
(generally, economically disadvantaged or disabled persons) known as "targeted
groups." This new tax act extends the credit through August 31, 2011 and expands
the categories dealing with veterans and high-risk youth. For more information,
check out Department of Labor – WOTC
and IRS Form 8850 Instructions.
This tax act has eased a filing rule on married business
owners. Joint filers who are the sole owners
of unincorporated businesses no longer have to file a complicated
partnership return and K-1 forms. Instead, starting with 2007 returns,
each spouse reports his or her share of income and expenses on separate Schedule
Cs. To qualify, both spouses must materially participate in the business. And
for purposes of Social Security benefits, each spouse’s earnings on Schedule C
are credited to his or her individual earnings record.
Also included in the act are tax incentives for taxpayers recovering form
Hurricane Katrina and changes for S-Corporation. The total of the tax
incentives is about $5 billion dollars. To balance out $5 billion of tax
incentives, the revenue-raising part of the bill deals with the expansion of
kiddie tax to millions of families. For more details on this expansion, check
out this blog: Kiddie Tax Extends to Children Between Ages 18 and