Category: Individual and Business Tax Consulting
As many of you are aware, at the beginning of 2013 the additional Medicare tax of 3.8% on investment income for high income taxpayers became effective. Investment income includes income from activities in which you are an owner but do not participate in the operations. These activities would include rentals of property and other trade or business that you may hold either directly or through an LLC or a corporation. In tax terms, these are called passive activities. This tax does not impact income from those businesses in which you have a degree of participation that the IRS deems to be "material." So, it is important to understand what the IRS deems material. What do you have to do to meet that IRS’s test? There are seven criteria. You can meet any one of these conditions.
If your spouse meets any of these tests, you have, by attribution, met the test. Participation should be documented if it is not obvious so that it can be proven in any IRS audit. We will need this information in preparation of your tax return.
If you do not meet any of these tests for a business, you may still be able to get material participation by grouping activities together. That will be addressed in our next newsletter. In the mean time, if you have questions or would like more information, please contact your Kerkering Barberio representative at 941-365-4617.