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Self-Employment Tax and NIIT for LLCs and High Income Individuals

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

Note: CLE credit is not offered on this program

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

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Conducted on Friday, October 25, 2024

Recorded event now available

or call 1-800-926-7926

This course will provide tax advisers 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 NIIT calculations and planning opportunities.

Description

The NIIT, also known as the 3.8 percent 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 challenges and unique planning opportunities because of the continued uncertainty regarding applying 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 restructure activities to wholly or partially avoid 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. FICA and SET basics
    2. NIIT basics
  2. Members and self-employment tax
    1. The limited partner exception
    2. Case law and rulings
  3. LLC members and NIIT
    1. Rental real estate activities: real estate professionals
    2. The limited partner material participation problem
  4. Trusts and estates
  5. Planning problems and opportunities
    1. The problem with S corporations and S corporation blockers
    2. Properly structured 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 strategies to minimize NIIT
  6. Tax reform proposals

Benefits

The panel will review these and other vital 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 LLC members generally
  • NIIT tax mitigation strategies for trusts and estates
  • Evaluation of S corporation and 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

Hess, Cameron
Cameron Hess
Director, Business and Finance
Fennemore

Mr. Hess brings unique dual experience in taxation and business law to the firm’s transaction department. As a...  |  Read More

Peters, Jonathan
Jonathan Peters
Attorney
Fennemore

Mr. Peters focuses his practice in business, corporate, and real estate law with a large part of his practice devoted...  |  Read More

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