Self-Employment Tax and NIIT for LLCs and Higher Income Individuals After Tax Reform

Minimizing Tax Through Activity Groupings, Self-Charged Interest, Blocker Corporations

Recording of a 110-minute CPE webinar with Q&A


Conducted on Thursday, October 18, 2018

Recorded event now available

or call 1-800-926-7926
Program Materials

This webinar will provide tax advisers and compliance professionals with a practical guide to navigating the net investment income tax (NIIT) rules as they apply to self-employed taxpayers, and offer tax reduction strategies for minimizing the NIIT. The panel will discuss the impact of the 2018 tax reform law on NIIT calculations and planning opportunities.

Description

Somewhat surprisingly, the 2017 tax reform law left in place the disparate treatment of LLCs, limited partnerships, and S corporations with respect to the application of self-employment tax and net investment income tax (NIIT) while changing many other factors, including treatment of pass-through income for owners of trades or businesses. The NIIT, also known as the 3.8% Medicare tax, applies to the net investment income of individuals in upper-income brackets and is generally viewed as an alternative to employment taxes on earned income. However, uncertainty regarding self-employment income and the impact of the NIIT on LLC members and limited partners continues to create confusion.

This area of the Code offers both challenges and unique planning opportunities because of the continued uncertainty regarding the application of self-employment tax to income earned by an LLC member and the potential application of NIIT to LLC income that escapes the reach of the self-employment tax. This program will discuss ways in which business owners can potentially restructure activities to wholly or partially avoid both self-employment tax and the NIIT.

Listen as our panel of federal tax experts outlines proactive planning strategies for minimizing the NIIT as it applies to income from LLCs and other pass-through entities.

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Outline

  1. Introduction
    1. Pre and post 2013 supplemental taxes
    2. FICA and SET basics
    3. NIIT basics
  2. Self-employment tax implications for LLC members
    1. The limited partner exception
    2. Case law and rulings
  3. Treatment of limited partners under 3.8% taxes, including NIIT
    1. Rental real estate activities—real estate professionals
    2. The “limited partner” problem
    3. Trusts and estates
  4. Planning opportunities
    1. S corporations
    2. Use of LLC and LPs
    3. Effect of grouping activities
    4. Self-charged interest and rent
    5. Avoiding NIIT through “material participation” and “significant participation”
    6. Net gain from dispositions
    7. Other business entity strategies

Benefits

The panel will review these and other important issues:

  • Interpreting the gaps in IRS regs using recent case law to confirm whether self-employment tax applies to limited partners
  • Application of the NIIT to real estate activities and to LLC members generally
  • NIIT tax mitigation strategies for trusts and estates
  • Evaluation of S corporation “blocker” strategies
  • Grouping activities among entities and partners to meet the material participation test
  • The treatment of self-charged interest and self-charged rent under the NIIT rule
  • Application of NIIT to net gain from dispositions of properties and LLC interests
  • Prospects for future legislative or regulatory changes

Faculty

Browne, James
James R. Browne

Partner
Barnes & Thornburg

Mr. Browne advises clients on the U.S. income tax aspects of domestic and international business transactions and...  |  Read More

Hess, Cameron
Cameron L. Hess

Partner
Wagner Kirkman Blaine Klomparens & Youmans

Mr. Hess practices in the firm’s Transaction Department in the areas of taxation and business law. A CPA,...  |  Read More

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