Client got a K-1 from his trading co with income in box 1 which is subject to the net investment income tax. How do I get Proseries to calculate this?

[rhbird]

My client is an energy trader.  He is part owner of the trading company he works for thus he gets a K-1 from the company.  The K-1 shows income in box 1 - Ordinary business income.  Since this income is derived from trading it is subject to the Net Investment Income Tax.  How do I get Proseries to calculate this? 

[TaxMonkey · Accepted solution]

I am not a specialist in energy trading, but when an activity is reported in box of a K-1 it is considered to be ordinary business income and not subject to the NIIT.  I am curious if you share a reference for when this wouldn't be the case?

[rhbird]

From IRS FAQ doc on NIIT.

8. What is included in Net Investment Income?

In general, investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities and businesses that are passive activities to the taxpayer (within the meaning of section 469). To calculate your Net Investment Income, your investment income is reduced by certain expenses properly allocable to the income (see #13 below).

[sjrcpa]

There should be a box to chaeck to say it is not a passive activity and/or that it is subject to NIIT. (I use Lacerte and we can do this)

[rhbird]

Not seeing that box in Proseries.  Is it on the K-1 entry worksheet in Lacerte? Or somewhere else?

[sjrcpa]

It is in K-1 entry Screen in Lacerte