2020 Year-End Tax Guide

49

www.marcumllp.com

NET INVESTMENT INCOME TAX (NIIT) In addition to income tax, individual taxpayers with modified adjusted gross income (MAGI) of more than $200,000 per year ($250,000 if married filing joint; $125,000 if married filing separately) may be subject to net investment income tax. NIIT equals 3.8% of the lesser of (a) net investment income or (b) the amount by which MAGI exceeds the applicable threshold. Net investment income includes interest, dividends, capital gains, rental income (unless derived from ordinary business activities), and passive activities, less deductions properly allocated to net investment income. Consider electing installment sale treatment so that gains are spread over a number of years. By spreading the income over multiple years, current year net investment income and MAGI may be reduced to minimize or eliminate the 3.8% tax for the current and future tax years. X Consider selling unrealized loss positions in your investment portfolio to offset capital gains recognized earlier in the year. X Tax exempt income is not subject to the 3.8% tax. Consider switching investments to tax exempt investments if it makes sense for your portfolio. State taxation of such investments should also be considered. Planning Opportunities: X

SMALL BUSINESS OWNERS If you own a business, consider the following strategies to minimize taxes:

X Defer Income– If your business uses the cash method of accounting, you can defer billing and collections for products or services until year-end. If you use the accrual method, you can delay shipping products or delivering services. X Accelerate Expenses– If you are a cash basis taxpayer, consider accelerating expenses by paying for business X Employ Your Child– If you are self-employed, consider employing your child to work in the family business. The child will be taxed at their rate on earnings (earnings are not subject to the Kiddie Tax). Wages paid by sole proprietors to children age 17 or younger are exempt from Social Security, Medicare and federal unemployment taxes. Make sure wages paid are reasonable given the child’s age and work skills. X Home Office Deduction– The TCJA suspended the home office deduction for employees who work from home. However, this deduction still applies if you are self- employed and have a home office that is used primarily for business activities. expenses by year-end. Credit card payments are deductible in the year charged rather than paid.