The implementation of the 3.8% Net Investment Income (NII) Tax should remind all individual taxpayers to revisit their tax planning and strategies previously implemented. In accordance with current proposed Internal Revenue Code (IRC) Regulation §1.1411, the Treasury Department has determined that the NII tax is a material change in facts for taxation. Consequently, any taxpayer who has adjusted gross income in excess of the NII tax threshold ($200,000 filing single, $250,000, married filing joint) and has net investment income is eligible to regroup activities in accordance with IRC §469. This permitted regrouping may result in reduced NII tax. The ability to regroup activities under Regulation §1.411 is available to a taxpayer only for the first year the taxpayer is subject to the NII tax. If the taxpayer does not utilize this opportunity, he/she will not be able to alter his/her grouped or ungrouped activities until there is material change in the facts and circumstances that make the original grouping clearly inappropriate.
For further discussions related to appropriate business activity groupings and the ability to potentially change groupings, please consult your Schneider Downs & Co., Inc. tax advisor.
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