The Active vs. Passive Question: Will you be NIIed?

Are you going to be hit with an extra 3.8% tax on part of your income? Find out how Active vs. Passive business activity can make a difference in your tax bill.

In this video, we take a look at how to take action now to avoid an additional 3.8% tax hit.

Starting in 2013 high-income taxpayers will be subject to a new 3.8% tax on net investment income.
Here’s the twist: The tax law considers income from “passive” ownership of a pass-through business — including LLCs (taxed as a partnership), partnerships and S corporations – to be investment income, which is subject to the new tax.

The federal tax law has very specific criteria for determining the classification of an “active” vs. “passive” taxpayer. It is important for taxpayers to review all their pass-through activities to determine if their current classification is correct, and to consider taking action to change it to avoid the extra tax.

This video answers several key questions, including:

  • What is considered net investment income (NII)?
  • When is a taxpayer subject to the new 3.8% tax?
  • How can you determine if a taxpayer is passive in an activity?
  • Can changes to the grouping of activities help avoid the tax?
  • Can qualifying as a real estate professional be beneficial?
  • Can a trust minimize my tax exposure?
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