Jorge is a 60-percent owner of JJ LLC (taxed as a partnership). He is a passive investor in JJ (he doesn't perform any work for JJ)and his marginal ordinary tax rate is 37 percent. Which of the following statements is true regarding Jorge's tax treatment of business income allocated to him from JJ?
A)Business income allocations are not subject to self-employment tax.
B)Business income allocations are not subject to the net investment income tax.
C)Business income allocations are subject to the additional Medicare tax.
D)Business income allocations are taxed at a maximum 23.8 percent tax rate.

Question

Quizplus · Accepted Answer

As a passive investor in JJ LLC, Jorge's business income allocations are not subject to self-employment tax. Self-employment tax is only applicable to active partners who participate in the management and operation of the LLC. While Jorge's share of business income is subject to ordinary income tax rates, it is not subject to self-employment tax.

Jorge Is a 60-Percent Owner of JJ LLC (Taxed as a Partnership)