Tax Planning 4- Tax Issues for High Net Worth Clients Flashcards
Most effective techniques an
an individual can use to reduce a tax bill
Shifting income from one year to another
Net Investment Income Tax
What are the three categories of net investment income
- Portfolio Income- interest dividend annuities royalties rents
- Income from trade or business that is a passive activity or a business of trading commodities or financial instruments
- Net gain derived from the disposition of property, other than property held in a non-Category 2 trade or business
How do we calculate NIIT for Individuals
Apply 3.8% to the lesser of
Net Investment Income
or
MAGI above the threshold amount
How do you calculate MAGI?
AGI + Net foreign earned income exclusion + untaxed Social Security + Tax Exempt Interest+ Student loan deduction + IRA deduction
What are the thresholds to which we apply the 3.8 NIIT rate for the excess over MAGI for individuals?
The individual MAGI thresholds for the NIIT are:
1. $250,000 for joint returns and surviving spouses,
2. $125,00 for married taxpayers filing separate returns, and
3. $200,000 for other taxpayers (single filers and heads of households).
No adjusted for inflation
How do we calculate NIIT for estates and trusts
For estates and trusts the NIIT is equal to 3.8% of the lesser of:
(1) undistributed net investment income, or
(2) adjusted gross income (AGI) that exceeds the inflation-adjusted threshold for
the highest income tax rate for estates and trusts.
The highest income tax rate for estates and trusts is 37% (39.6% for tax years beginning
before 2018).
What are the thresholds to which we apply the 3.8 NIIT rate for the excess over MAGI for trust?
AGI Thresholds for trusts
2018-$12,500
2019- $12,750
2020- $12,500
2021- $13,250
2022- $13,451
Net investment income is reduced by properly allocable deductions. Special rules may
apply to owners of certain foreign entities (controlled foreign corporations, passive
foreign investment companies and or qualified electing fund
What are the thresholds to which we apply the 3.8 NIIT rate for the excess over MAGI for individuals?
The individual MAGI thresholds for the NIIT are:
1. $250,000 for joint returns and surviving spouses,
2. $125,00 for married taxpayers filing separate returns, and
3. $200,000 for other taxpayers (single filers and heads of households).
Not adjusted for inflation
Inclusions for NIIT for 3.8 surtax
Taxable interest
Dividends
Annuities
Royalties
Net capital gains
Rents from nonactive
trade/business
Net passive activity income
Exclusions for NIIT for 3.8 surtax
Compensation
Tax-exempt interest
Income from trade or business
Retirement plan distributions
Excluded qualified gains from the sale of a principal residence
Gains from like-kind exchanges
ESOP and qualified small business stock transactions
Net Investment Income
Add inclusions for NIIT calculation
LESS: Investment expenses (after various limitations) and allowable
investment interest expense
Exclusions for NIIT for 3.8 surtax
Compensation
Tax-exempt interest
Income from trade or business
Retirement plan distributions
Excluded qualified gains from the sale of a principal residence
Gains from like-kind exchanges
ESOP and qualified small business stock transactions
