Individual IssuesChapter 10 pp. 328-3902017 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 insurance8.16% 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 Paymentspp. 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

$250,000 Married Filing Jointly$125,000 Married Filing Separately$200,000 Single$200,000 Head of Household$250,000 Qualifying Widow(er)

3.8% x lesser of: 1) Net investment income OR2) Modified adjusted gross income

over the threshold amounts:

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 corpinterest

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 Professionalsp. 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 years2. 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 1st year subject to NIIT

NIIT CalculationIndividuals 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 Trustspp. 340 - 341

3.8% of lesser of▪ 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 Platformsp. 341

Online platform connects buyers/sellers

▪ Lyft or Uber▪ Airbnb or VRBO▪ Etsy and Thumbtack

Employee vs Independent Contractor?

Reporting & Payment Requirementspp. 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 Expensespp. 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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