Individual Issues Chapter 10 pp. 328-390 2017 National Income Tax Workbook
Individual Issues p. 327 1. Affordable Care Act 2. Net Investment Income Tax 3. Sharing Economy
Affordable Care Act p. 328 All US individuals must: 1. Have qualifying health insurance, 2. Qualify for a coverage exemption, 3. Make an individual shared responsibility payment (ISRP)
Individual Shared Responsibility Payments (ISRP) p. 328 Coverage exemption - Form 8965 No coverage exemption - ISRP Worksheet in Form 8965 instructions 2017 flat dollar amounts $695 per adult & $347.50 per child Birth/adoption/death can = full-year No real enforcement by IRS
Silent Returns p. 329 Silent = Return with no health coverage information As of October 2017 - IRS will reject (as in prior years) Law requires information on return
Reporting Minimum Essential Coverage (MEC) pp. 329-330 MEC reported on F1095 series Catastrophic plans qualifies as MEC Does not qualify for Premium Tax Credit (PTC) Qualified small employer health reimbursement arrangement (QSEHRA) Employer will issue Form 1095-B
Alternative Proof of MEC pp. 330-331 Insurance/Medicare card Form W-2/pay stub showing deduction Explanation of benefits Insurer statement Medical bill showing insurance reimb. Employer document/statement Record of Advanced payments of PTC
Coverage Exemptions pp. 331-333 Exemptions - Figure 10.3 (pp. 332-333) Use Exemption H if: Birth/adoption/death during the year and Coverage exemption claimed for after birth/adoption or before death Affordability of Marketplace insurance 8.16% for 2017 8.05% for 2018
Premium Tax Credit (PTC) p. 334 Marketplace policies only If household income (HHI)100% - 400% Federal Poverty Level (Figure 10.4) N/A if employer coverage affordable Self-only cost > 9.69% HHI (9.56% 2018) Advanced PTC reconciled Form 8962 Limit on repayment based on income Must reconcile to get advanced again
Opt-out Payments pp. 335-336 Employee: Unconditional opt-out or Conditional & employee meets conditions Employer: Plan > 12/16/15 part of employee cost Others in employee cost after regs final Form 1095-C, line 15, may be understated
Net Investment Income Tax (NIIT) Overview p. 336 3.8% x lesser of: 1) Net investment income OR 2) Modified adjusted gross income over the threshold amounts: $250,000 Married Filing Jointly $125,000 Married Filing Separately $200,000 Single $200,000 Head of Household $250,000 Qualifying Widow(er)
Investment Income/Gain p. 337 Interest Dividends Annuities Royalties Rents
Net Gains subject to NIIT p. 337 Gain from sale of stocks, bonds, or mutual funds Gain from sale of property not held in a trade or business Gain from sale of Partnership or S corp interest Gain from investment of working capital
Items Not Subject to NIIT p. 337 Subject to SE tax Wages Unemployment compensation Social security benefits Alimony Tax-exempt interest
Items Not Subject to NIIT cont d p. 337 Distributions - certain retirement accts Items excluded from gross income Nonpassive activity prop sold at gain Trading activity Income from a nonpassive activity
Deductions for NIIT p. 337-338 Allocable to rent/royalty income Allocable to trade or businesses subject to NIIT Savings early withdrawal penalties allocable to income subject to NIIT NOL allocable to NIIT income Allocate with reasonable method
Deductions which may need to be allocated p. 338 State & local income taxes Investment interest expense Investment advisory and brokerage fees Rental/royalty related expenses Expenses related to tax issues Expenses incurred by estate/trust
Real Estate Professionals p. 338 Being a Real Estate Professional does not exclude rental income from NII Exclude if: 1. Participated > 500 hours current year or > 500 hours 5 of last 10 years 2. Can show rental activity is in ordinary course of a trade or business
Grouping Activities to Avoid NIIT p. 339 Activities = appropriate economic unit Similarities/differences Extent of common control Extent of common ownership Geographical location Interdependencies between activities May regroup in 1 st year subject to NIIT
NIIT Calculation Individuals pp. 339-340 File on Form 8960 Applies US citizens and residents Special Rule for Nonresident spouse If elects to file jointly & does not elect joint for NIIT, MFS threshold applies Subject to estimated tax provisions
NIIT for Estates and Trusts 3.8% of lesser of pp. 340-341 Undistributed new investment income or Excess of AGI over dollar amount at which highest tax bracket begins ($12,500 for 2017) File on Form 8960
Sharing Economy Platforms p. 341 Online platform connects buyers/sellers Lyft or Uber Airbnb or VRBO Etsy and Thumbtack Employee vs Independent Contractor?
Reporting & Payment Requirements pp. 341-342 Income reported on 1099 s Estimated tax payments Owe $1,000 after credits/withholding Withholding & credits < smaller of: 1. 90% of tax shown on the tax return 2. 100% of prior year tax
Estimated Tax Penalty & SE Tax p. 342 Estimated tax penalty exceptions: No payment due to casualty, disaster Retired > 62, or became disabled and had reasonable cause Self-employment tax 15.3% on first $127,200 2.9% on amounts over $127,200.9% Medicare tax if > threshold
Business Expenses pp. 343-344 Business use of home Principal place of business Place to meet patients, clients, customers Separate structure If sole fixed location, storage space Actual expenses Form 8829 Simplified method - $5/sq ft up to $1,500
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