Tax Break Extensions in the 2007 Small Business Act

The recently passed 2007 Small Business Act provides extensions for several popular tax breaks. In addition, a number of provisions, such as small business expensing and the work opportunity tax credit, were enhanced in the new legislation to provide more valuable incentives and additional tax relief. Here's an overview of the extension provisions in the new legislation:

The Work Opportunity Tax Credit.

The work opportunity tax credit (WOTC) allows employers tax credits for hiring individuals from one or more of nine targeted groups (such as recipients of public assistance, qualified veterans on assistance, and “high risk youth”). The credit was scheduled to expire at the end of this year, but the new law extends the credit for more than 3 years (through September 31, 2011). In addition, the new law expands and enhances the credit by:

• Expanding the qualified veterans' targeted group to include an individual who is certified as entitled to compensation for a service-connected disability and who (1) is hired by the employer within one year of being discharged or released from active duty in the Armed Forces of the United States, or (2) has been unemployed for six months or more during the one-year period preceding the date of hiring. For these individuals, the amount of first-year wages eligible for the credit is increased from $6,000 to $12,000.

• Expanding the definition of high-risk youths to include otherwise qualifying individuals age 18 but not yet age 40 on the hiring date. Also, the provision expands the definition of eligible individuals under this category to include otherwise qualifying individuals from rural renewal counties, defined as a county outside a metropolitan area which had a net population loss during the five-year periods 1990-1994 and 1995-1999.

• Modifying the definition of vocational rehabilitation referral for purposes of the credit to include certain individual work plans developed and implemented by an employment network under the Social Security Act.
  
  

Generally, the extension of the credit is effective for wages paid or incurred to a qualified individual who begins work for an employer after December 31, 2007 and before September 1, 2011. The other provisions are effective for individuals who begin work for an employer after May 25, 2007, in tax years ending after that date.

Extension of increased expensing for small business.

A taxpayer, other than an estate, trust, and certain noncorporate lessors, may elect under Code Sec. 179 to deduct as an expense, rather than to depreciate, up to a specified amount of the cost of new or used tangible personal property placed in service during the tax year in his trade or business. Under pre-Act law, the maximum dollar amount that could be deducted annually was $100,000 ($112,000 for 2007, as adjusted for inflation). The taxpayer's maximum annual Code Sec. 179 expensing amount is reduced dollar-for-dollar by the amount of qualified expensing-eligible property that he places in service during the tax year in excess of a phaseout amount. Under pre-Act law, this amount was $400,000 ($450,000 for 2007, as adjusted for inflation). The new law increases the expensing limit to $125,000 and the phaseout level to $500,000 for 2007 (indexed for inflation) and extends the enhanced expensing provision through 2010.