Update for Small Business and Work Opportunity Tax Act of 2007 On May 25, 2007, President Bush signed into law H. R. 2206, the Iraq emergency supplemental appropriations bill (P.L. 110-28 ) that also includes the Small Business and Work Opportunity Tax Act of 2007 (2007 Small Business Tax Act). The principal changes made by this Act are summarized below. Section 179 Expensing Limit Increased (Chapter 6) The 2007 Small Business Tax Act increased the Section 179 expensing limit from $112,000 to $125,000 retroactively to the beginning of 2007. The investment limit is also increased from $450,000 to $500,000 so that the $125,000 begins to phase out once $500,000 of qualifying property is acquired and is completely phased out once $625,000 ($125,000 + $500,000) of eligible property is acquired. The $125,000 and $500,000 amounts will be indexed for inflation for 2008 through 2010. This change is mentioned on page 242 of the text as pending legislation. The Solutions Manual includes revised solutions for end-of-chapter problems affected by this change immediately following the original solution for the problem. The following revised examples from the text illustrate the computations. Example 25 (page 241 of text) Sampson Corporation purchased $150,000 of used 5-year equipment in March 2007. Sampson can elect to expense $125,000. Regular MACRS depreciation will be $5,000 [($150,000 - $125,000 expensed) x 20% regular MACRS rate] resulting in total 2007 depreciation of $130,000. Example 26 (page 242 of text) Barnard Corporation purchases $525,000 equipment in 2007. Its Section 179 expensing limitation for 2007 is reduced to $100,000 [$125,000 – ($525,000 - $500,000)]. If Barnard had purchased $625,000 or more equipment in 2007, it could not claim any Section 179 expensing for the year. Married Owners Can File As Sole Proprietors (Chapter 10) A married couple who jointly own an unincorporated business can elect to file as a sole proprietorship if they both materially participate in the business and there are no other owners. The husband and wife would each report their share of income on a Schedule C and each would pay self-employment taxes on their share of income. This change is intended to allow both spouses to get credit for paying Social Security taxes and can be elected for tax years beginning after December 31, 2006. This change is mentioned on page 396 of the text as proposed legislation. Kiddie Tax Age Increased (Chapter 12) Beginning in 2008, the kiddie tax will apply to children under age 19 (increased from under age 18) and full-time students under age 24. The kiddie tax will not apply to a student over age 17 if the student’s earned income exceeds half of the student’s support. This change is mentioned on page 511 of the text as proposed legislation.