Partnering With Guidance
While the regulatory environment has evolved over some time, 2013 has ushered in significant changes that call for a new focus on tax planning and administration. Tax rates have increased, the list of taxpayer disclosure requirements continues to grow, and there has been an uptick in audit activity at both the federal and state levels. This article will highlight some of the major legislative changes and provide some helpful insights for navigating through them.
Medicare Contribution Tax
The Patient Protection and Affordable Care Act (“PPACA”) has added a new dimension to the taxation of pass-through income. The PPACA, signed by President Obama on March 23, 2010, has been one of the most fervently debated pieces of legislation in recent memory – and it appears it is here to stay. One of its main components, which went into effect on January 1, 2013, is the imposition of a 3.8 percent tax on net investment income for certain high-income taxpayers – codified as the Medicare contribution tax. The term “net investment income,” for purposes of the Medicare contribution tax, includes items such as interest, dividends, and capital gains less certain expenses. Perhaps most importantly, net investment income includes net income from passive activities. Passive activities are trades or businesses in which the taxpayer does not materially participate. To materially participate, or to be considered “non-passive,” a taxpayer must be involved in the operation of the activity on a regular, continuous, and substantial basis. Such involvement, per IRS regulations, is measured by certain tests that take into account the number of hours a taxpayer spends operating or otherwise managing the trade or business.
The Metropolitan Corporate Counsel
October 2013 Issue
Read the entire article here.