New 3.8% Federal Net Investment Income Tax Challenges for Tax Professionals Tackling Tax Compliance and Planning for High-Income Individuals and Pass-Through Entities THURSDAY, SEPTEMBER 26, 2013, 1:00-2:50 pm Eastern IMPORTANT INFORMATION This program is approved for 2 CPE credit hours . To earn credit you must: • Participate in the program on your own computer connection and phone line (no sharing) – if you need to register additional people, please call customer service at 1-800-926-7926 x10 (or 404-881-1141 x10). Strafford accepts American Express, Visa, MasterCard, Discover . Respond to verification codes presented throughout the seminar . If you have not printed out the “Official Record of • Attendance”, please print it now . (see “Handouts” tab in “Conference Materials” box on left -hand side of your computer screen). To earn Continuing Education credits, you must write down the verification codes in the corresponding spaces found on the Official Record of Attendance form . Complete and submit the “Official Record of Attendance for Continuing Education Credits,” which is available on the • program page along with the presentation materials. Instructions on how to return it are included on the form. • To earn full credit, you must remain on the line for the entire program. WHOM TO CONTACT For Additional Registrations : -Call Strafford Customer Service 1-800-926-7926 x10 (or 404-881-1141 x10) For Assistance During the Program : - On the web, use the chat box at the bottom left of the screen - On the phone, press *0 (“star” zero) If you get disconnected during the program, you can simply call or log in using your original instructions and PIN.
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New 3.8% Federal Net Investment Income Tax Challenges for Tax Professionals Sept. 26, 2013 Anthony Nitti, WithumSmith + Brown Kurt Piwko, Plante Moran anitti@withum.com kurt.piwko@plantemoran.com Hal Terr , WithumSmith + Brown hterr@withum.com
Today’s Program Tax Implications of the Patient Protection and Affordable Slide 7 – Slide 31 Care Act [Anthony Nitti, Hal Terr] Determination and Reporting of Net Investment Income Slide 32 – Slide 43 for Flow-Through Entities [Kurt Piwko] Treatment of Business Sales Slide 44 – Slide 56 [Kurt Piwko]
Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
Anthony Nitti & Hal Terr, WithumSmith + Brown TAX IMPLICATIONS OF THE PATIENT PROTECTION AND AFFORDABLE CARE ACT
Anthony Nitti, CPA, Partner WithumSmith+Brown, PC | Certified Public Accountants and Consultants | www.withum.com
Section 3101(b)(2) & 1401(b)(2): Tax on Earned Income 9 Levied on earned income (wages and self-employment income) in excess of: • $250,000 for MFJ • $200,000 for single • $125,000 for MFS EXAMPLE: A, a single taxpayer, earns wages of $300,000 in 2013. Increased On $100,000 of wages, A will pay Tax on an extra 0.9% Medicare tax, or Wages $900.
Section 1411: Surtax on Net Investment Income 10 Starting in 2013, high-income individuals will pay an extra 3.8% tax on the lesser of: Net investment income, or Modified adjusted gross income – the applicable threshold: • $250,000 for MFJ Increased • $200,000 for single Tax on • $125,000 for MFS Investment Prop. Reg. Section 1.1411-2(d) Income
What Is Modified Adjusted Gross Income 11 ADJUSTED GROSS INCOME LESS any deductions or exclusions PLUS any foreign earned income disallowed under Section 911(d)(6) excluded under Section 911(a), related to foreign earned income. Prop. Reg. Section 1.1411-2(c) In Summary If you have no foreign earned income, AGI = MAGI
Investment Tax 12 A: In addition to his A will pay an regular income tax A MARRIED additional obligation, A must pay an additional 3.8% tax TAXPAYER 3.8% on on the lesser of: Earns wages of $45,000. Net $225,000 investment Dividends of income of $70,000, or $30,000 Interest of Agi of $40,000 $295,000 - Adjusted gross $250,000 = income is $45,000. $295,000.
Definition of Net Investment Income: 13 • Net Investment income includes: FOUR THREE TWO ONE Net gains from Income and gains Income and gains Interest, the sale of the trade or from S dividends, property, business of corporations, annuities, including the sale trading in partnerships, and royalties, rents, of stock in an S financial sole substitute corporation or an instruments or proprietorships if interest and dividend interest in a commodities. they are “passive partnership activities” payments, and • Less applicable deductions. income from Prop. Reg. Section 1.1411-4(a)(1)(i), (ii), (iii) • working capital.
“Two Little i Income”: Passive Activities/Financial Trading 14 Prop. Reg. Section 1.1411-5 All income from an S corporation, partnership, or sole proprietorship is net investment income if the trade or business: However, there is a big exception. Is passive to the taxpayer, or Is in the trade or business of trading in financial instruments.
Income Allocated From S Corporation or Partnership 15 If a taxpayer owns a sole proprietorship, a single-member LLC, or an interest in a partnership or S corporation, any income or gain generated from the activity will not be net investment income if: The activity is The activity is not engaged in an The income is a passive activity active trade or derived from the to the taxpayer business that is ordinary course of (under the not the trading of that trade or definition of financial business, AND Section 469). instruments, AND
BUSINESS EXAMPLE 16 16 The S corporation is engaged in a trade or business that does not involve trading in financial instruments. The S corporation Walter works Jesse is the other earns $400,000 in 2000 hours 50% shareholder, income in the during 2013 in an and does not ordinary course of S corporation in work any hours its trade or business which he is also a in the S and $20,000 of 50% shareholder. corporation. interest and dividend income.
• The S corporation is engaged in a trade or business 17 17 • Walter materially participates in the S corporation • Jesse does not Both Walter Walter Jesse and Jesse must include their share of $200,000 of ordinary the dividends $200,000 of income is net ordinary and interest in investment income is not income because their net net investment Ted fails to investment income. materially income. participate.
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