ExpertMedium1 markMultiple Choice
CPA · Question 05 · Area 1: Individual Tax
A single taxpayer has the following financial profile for Year 1:<br/>- Wages: $180,000<br/>- Net Investment Income (Interest, Dividends, Capital Gains): $40,000<br/>- Modified Adjusted Gross Income (MAGI): $220,000<br/><br/>What is the taxpayer's Net Investment Income Tax (NIIT) liability for Year 1?
A single taxpayer has the following financial profile for Year 1:<br/>- Wages: $180,000<br/>- Net Investment Income (Interest, Dividends, Capital Gains): $40,000<br/>- Modified Adjusted Gross Income (MAGI): $220,000<br/><br/>What is the taxpayer's Net Investment Income Tax (NIIT) liability for Year 1?
Answer options:
A.
$0
B.
$760
C.
$1,520
D.
$950
How to approach this question
1. Identify the NIIT threshold for Single filers: $200,000.<br/>2. Calculate Excess MAGI: $220,000 - $200,000 = $20,000.<br/>3. Identify Net Investment Income (NII): $40,000.<br/>4. Determine the tax base: Lesser of NII ($40,000) or Excess MAGI ($20,000). Base = $20,000.<br/>5. Calculate Tax: $20,000 * 3.8%.
Full Answer
B.$760✓ Correct
B
NIIT Base = Lesser of (a) NII ($40,000) or (b) MAGI - Threshold ($220,000 - $200,000 = $20,000).<br/>Base = $20,000.<br/>Tax = $20,000 * 3.8% = $760.
Common mistakes
Applying the 3.8% tax to the entire NII amount without checking the MAGI excess limitation.
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