2007 Tax Law Changes Affecting Business 

By E. Lynn Nichols, CPA

Some business tax changes were passed in May, others may be passed before year-end, still others are just speculative political rhetoric.  This article lists what’s likely to pass within the next 30 days and what’s already passed (in May of 2007) that will affect 2007 returns and 2008 planning.  Some of the changes, such as the increased “Section 179” deduction will affect many businesses; while others, such as various credits, will affect only a few special transactions.

Legislation in process in late October promises extension of many credits and tax incentives and that offers planning opportunities for future years.

One statement about the 2007 tax rules that is absolutely true is “They are different from 2006.”  Another true statement is “There are many things that can be done before December 31, 2007 that can significantly reduce the tax bills of many businesses.”  See how many good ideas you can generate from the information that follows.

Late Changes in 2007 Will Affect 2007 Returns and Year-end Planning
Ways and Means Chairman, Charles Rangel, is determined to “simplify” the tax code, but in the meanwhile, it’s politics as usual and these are our best thoughts on “open items” in late October that are likely to become law in time to affect 2007 tax obligations.

Virtually every provision that was scheduled to expire during 2007 or as of 1/1/08 will be extended . . . at least through the end of 2008 . . . including . . .

* Research and development credit

* 15 year cost recovery for leasehold improvements and restaurant renovations
 
* 7 year cost recovery for motorsports entertainment complexes

* Enhanced charitable contribution deductions for books, computer equipment, and food inventories by corporations

* Special rule allowing S corporation shareholders full deduction for charitable contributions by S corporation

Energy conservation credits will be expanded, and additional credits may be added

Now, let’s go over the certain changes and what that means to you and your tax clients.

What’s Changed for Business Taxes in 2007 That We are Sure of 

* The Section 179 additional first year depreciation deduction is increased to $125,000, with a phase-out threshold of $500,000 . . . indexed for inflation through 2010.

* Employers may provide up to $215 per month parking allowance to employees tax free

* All the Gulf Opportunity Zone tax incentives are extended through 2008.

* Married persons who jointly own and operate a business in a pass-through entity may choose to file a partnership return or two schedules C or F.

* The Employer Tip Credit is extended and enhanced with the minimum wage threshold set at $5.15 in order not to lose benefit of the credit when the minimum wage increased.

A number of favorable provisions were extended through the end of 2007 . . . 

        o     The Research and Development Credit
        o     Work Opportunity and Welfare to Work Credits are combined and extended
        o     15 year depreciation for leasehold improvements and restaurant renovations

Be proactive, contact your business clients with your ideas about how to benefit from the tax law developments in this list.