Disclaimer: This content is provided for informational purposes only and does not intend to substitute financial, educational, health, nutritional, medical, legal, etc advice provided by a professional.
Section 1411 of the IRS Code imposes the Net Investment Income Tax (NIIT), which can affect your taxes. The NIIT is a 3.8% tax on certain investment income for individuals, estates, and trusts. To understand how this tax may impact you, it's essential to have a clear understanding of the basics.
The Net Investment Income Tax (NIIT) is a tax imposed by the IRS on certain investment income. It was introduced as part of the Affordable Care Act to help fund Medicare.
The Net Investment Income Tax went into effect on January 1, 2013.
The Net Investment Income Tax applies to individuals who meet specific income thresholds. For single taxpayers, the threshold is $200,000, and for married taxpayers filing jointly, the threshold is $250,000.
Modified adjusted gross income (MAGI) is your adjusted gross income with certain modifications. It includes income from wages, self-employment, rental income, and investment income.
Individuals whose income falls below the applicable threshold are not subject to the Net Investment Income Tax.
Estates and trusts are subject to the Net Investment Income Tax if they have undistributed net investment income and their adjusted gross income exceeds the threshold amount for the highest tax bracket.
Estates and trusts with adjusted gross income below the threshold amount for the highest tax bracket are not subject to the Net Investment Income Tax.
Net Investment Income includes various types of income, such as:
However, not all income is considered Net Investment Income. Some common types of income that are not included are:
When calculating Net Investment Income, you can deduct certain investment expenses. These expenses are allocable to investment income and can help reduce your overall tax liability. Some deductible investment expenses include:
It's important to note that starting in 2018, miscellaneous investment-related expenses are no longer deductible. This includes expenses such as investment seminars, travel expenses, and home office expenses.
If you are subject to the Net Investment Income Tax, you will need to report and pay the tax. Here's what you need to know:
Understanding the Net Investment Income Tax and deductible investment expenses is crucial for managing your tax liability. By knowing the rules and regulations, you can make informed decisions about your investments and minimize your tax burden. Consult with a tax professional for personalized advice tailored to your specific situation.
Disclaimer: This content is provided for informational purposes only and does not intend to substitute financial, educational, health, nutritional, medical, legal, etc advice provided by a professional.