A: On May 25, the President signed the Small Business and Work Opportunity Tax Act of 2007 (SBWOTA). Passed in conjunction with legislation to continue funding the war in Iraq and to raise the minimum hourly wage, the tax-related provisions are designed in part to provide benefits to small businesses likely to be hit hard by the minimum wage increase.

Following are highlights of key provisions affecting businesses and individuals, as well as GO Zone incentives and other areas of tax law.

Businesses

The Section 179 election to expense property in its initial year (rather than depreciate it) is extended through 2010 and increased from $100,000 to $125,000, effective for years beginning after 2006. The expense deduction begins to phase out if more than $500,000 of eligible property is placed in service during the year (up from $400,000). These amounts will be adjusted for inflation annually.

The Work Opportunity tax credit, which had been set to expire Dec. 31, 2007, is extended until September 30, 2011. This credit is available to businesses that hire employees from targeted groups of individuals, such as veterans, ex-felons, high-risk youth, and food stamp and supplemental security income recipients. The new law expands this list to include disabled veterans and individuals in counties that have suffered significant population losses. If you hire a target employee, your business can receive a 40% tax credit for the first $6,000 paid to that worker.

The individual and corporate alternative minimum tax (AMT) limits on the use of certain credits are waived, effective for years after 2006 as well as for carryback of these credits. This applies to the Work Opportunity credit and the credit for taxes paid on employee tips. Employers are also now eligible for the full tip credit despite the increase in the minimum wage.

SBWOTA includes certain S corporation and pension provisions, but they are generally too obscure and technical to cover here. Contact your tax advisor to ascertain whether any of these changes affect your tax planning strategies.

Individuals

The new law also affects some individual taxpayers. The "kiddie tax," which subjects children (and now young adults) to tax on most unearned income at their parents' marginal tax bracket, had recently been expanded to include those under age 18 (up from age 14). Now, SBWOTA broadens that rule to include those who qualify as dependents because they are either under age 19, or under age 24 and a full-time student, if their earned income doesnt exceed one half of the amount needed for their support.

GO Zone incentives

In addition, SBWOTA extends several tax incentives designated for the Gulf Opportunity Zone (GO Zone):

• The increased Sec. 179 expense election, which is generally doubled for qualifying property, is extended through 2008.

• The low-income housing tax credit for GO Zone housing is extended through 2010.

• Tax-exempt bond financing for GO Zone property is expanded to include expenses for all repairs and reconstruction. The provision applies to owner financing provided after May 25, 2007, and before 2011.

Other Changes

Finally, the act subjects tax return preparers to increased levels of penalty for the redefined category of "unreasonable positions" taken on a tax return, as well as for the category of "willful and reckless" tax positions. The legislation also makes changes in the pension area, as well as numerous other minor changes and technical corrections. Please consult your tax advisor for details that may affect you.

Q: What will the Tax Increase Prevention and Reconciliation Act of 2006 mean to me?

A: President Bush signed "The Tax Increase Prevention and Reconciliation Act of 2006 (HR 4297)", into law on May 17. He called the $70 billion tax cut package "vital legislation" that will "keep our taxes low and the economy growing." The president, at a White House signing ceremony, maintained that the tax cuts enacted since 2001 have led to strong job growth, higher productivity and a sound economy.

Bush singled out the provisions to extend capital gains and dividend tax cuts an additional two years through 2010, saying that lowering the cost of capital has encouraged business investment and created additional jobs. Countering critics who say these provisions are tax breaks for the wealthy, Bush said the lower rates on capital gains and dividends benefit "all levels of income," adding that nearly half of U.S. households have some investment in the stock market. Extending these provisions will provide certainty in the tax code so that businesses and investors can plan for the future, Bush asserted.

In addition, the new law provides alternative minimum tax relief in 2006 by raising the exemption amount and allowing taxpayers to claim certain non-refundable personal credits to offset AMT liability. Another major provision extends higher Code Sec. 179 small business expensing thresholds through 2009.

There are $20 billion in revenue offsets to keep the net cost of the bill at $70 billion. Revenue raisers include elimination of the $100,000 ceiling for converting a traditional individual retirement account (IRA) to a Roth IRA for tax years after 2009.

The new law also changes the "kiddie tax' provision so that unearned income of children must be taxed at their parents' top rate until age 18 instead of age 14 under current law.

Q: How do I know if I am taking advantage of all the tax breaks I am entitled to.

A: Your tax professional is the ideal person to help you with this. Whether you are an average consumer or a business owner, due to recent changes in the tax laws, there are many steps you can still take to reduce your 2005 tax burden and improve your bottom line -- provided you plan carefully and act before opportunities expire.

Tax planning for individuals is more than simply filling out your returns. It's a powerful tool for helping you achieve your goals of maximizing net income, putting away enough money for your children's college education, ensuring a secure retirement, and protecting your wealth from estate and other taxes.

And if you're a business owner, we can offer your company the benefits of:

• Determining whether you are eligible for special state and local tax credits. Many companies are unaware of the tax incentives that various governmental units offer to all businesses, not just heavy industry.
  
• Evaluating your business structure and activities for ways to reduce taxes at all levels. Often, a simple change in operating procedure translates into real tax savings.
  
• Assessing your business assets to ensure that their distribution takes full advantage of changes in tax law and proven tax-reduction strategies.
  
• Suggesting ways, such as timing equipment purchases and using various depreciation methods, to further reduce your tax liability.
  

The professionals at Israeloff, Trattner & Co. are fully familiar with the latest tax laws and tax-reduction strategies, and can show you how to make them work to your advantage. We are dedicated to helping individuals and businesses develop and implement tax strategies that keep their federal, state and local tax liability at a minimum, while increasing their profitability.

Each Fall, we send our clients a complimentary copy of our new Tax Planning Guide. If you haven't received a copy, please do not hesitate to contact us. But don't delay. To save the most, you may have to act promptly. And the earlier you begin, the sooner you can start reaping the benefits of careful tax planning.

Q: Are Tsunami Relief Donations Eligible For Deduction In 2004?

A: Usually, charitable contributions are only tax deductible in the year they are made. So, an individual taxpayer generally may only deduct for 2004 those contributions that were made on or before December 31, 2004. To encourage donations to help those affected by the recent disaster in the Indian Ocean region, however, our lawmakers have made an exception to this rule.

On January 7, 2005, President Bush signed legislation that allows taxpayers to claim a deduction on their 2004 federal income-tax returns for donations made to organizations involved in relief efforts for victims of the Indian Ocean tsunami.

Individuals and corporations making cash donations through January 31, 2005, will be eligible to claim a deduction on their 2004 returns. Contributions must be specifically designated for tsunami relief to qualify. Individual taxpayers must itemize to take advantage of the deduction.

Taxpayers should review their marginal income-tax brackets for 2004 and 2005 before deciding whether to claim the deduction for 2004. If claiming the deduction in 2005 would provide a greater tax saving, filers would still have that option available to them.

The Internal Revenue Service is expected to issue guidance to help taxpayers seeking to claim the deduction in 2004. Donations must meet the general requirements for charitable contribution deductions under the tax law.

Wed be happy to provide answers to any questions about this new tax provision or your 2004 tax return in general.

Q: What is the Working Families Tax Relief Act of 2004?

A: On September 23, 2004, Congress passed the Working Families Tax Relief Act of 2004. The act extends the life of several tax breaks for individuals and businesses created by earlier legislation, but expired or were scheduled to expire at the end of the year.

Here's a look at the main provisions of the new tax law. The extensions of AMT relief may have the biggest impact on your tax liability. Please contact us for a fuller explanation of specific provisions and how you can best take advantage of them.

INDIVIDUALS

Extensions through 2005 for expired provisions: