This year, Justin B.’s share of S corporation income includes $4,600 of interest

Question

This year, Justin B.’s share of S corporation income includes $4,600 of interest income, $5,900 of dividend income, and $43,000 of net income from the corporation’s professional service business activity.

a. Assume that Justin B. materially participates in the S corporation. How much of his S corporation income is potentially subject to the net investment income tax?

b. Assume that Justin B. does not materially participate in the S corporation. How much of his S corporation income is potentially subject to the net investment income tax?

Explanation / Answer

a.) Materially participates implies involvement in the activity of business operation on continual, regular and noteworthy basis,

$10500 , $4,600 of interest income, $5,900 of dividend are potentially subject to the net investment income tax because these incomes are from investment activity in S Corporatio ,whereas the net income of $43000 will not be considered because this income is from business activity

b.) In this case, Justin B. does not materially participate means his participation is passive (not active) ,

$53500 , income includes $4,600 of interest income, $5,900 of dividend income, and $43,000 of net income will be potentially subject to the net investment income tax because these income are from dividend & interest and earning or profit from business activities.

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