NIIT SE TAX OR NEITHER ?

Home Fairmark Forum Equity Compensation NIIT SE TAX OR NEITHER ?

Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • #16728
    caesark
    Participant

    Executive has substantial ownership interest via shares in a mortgage business LLC. He has significant responsibilities and works his interest on a full time basis. 2020 was a very profitable year resulting in a K-1 reporting millions of ordinary income. Is this income subject to NIIT? and if not, would it be subject to SE tax?

    #16894
    Kaye Thomas
    Moderator

    Is this a partnership K-1 (Form 1065)? If so, what does it say about self-employment earnings (box 14)?

    #17385
    caesark
    Participant

    Kaye,
    Yes, a K-1 is in the making for 2020. I have concluded the taxpayer meets the test for material participation and therefore is not subject to NIIT on the LLC income. However, I am anticipating the K-1 will report the income in Box 14. If that is the case, can you envision any circumstances that would support not reporting SE income?
    Any thoughts you have would be appreciated.

    #17401
    Kaye Thomas
    Moderator

    I’m not aware of any theory under which the income avoids being treated as SE income. Note that this tax applies only to the first $137,700 of SE income for 2020, so it will be a small fraction when the K-1 shows millions in income.

    #17403
    caesark
    Participant

    Kaye,
    The 2.9% Medicare tax would apply to the entire amount of income, correct.
    While it is less than the 3.8% NIIT, in this tax return it will be not be a small fraction.

    #17408
    Kaye Thomas
    Moderator

    Right, I should have said the full SE tax applies only to the smaller amount.

Viewing 6 posts - 1 through 6 (of 6 total)
  • You must be logged in to reply to this topic.