Created as part of the Health Care and Education Reconciliation Act to fund healthcare reform in 2010, the net investment income tax (NIIT) is a tax on net investment income. Those who are subject to the tax will pay 3.8 percent on the lesser of the two: their net investment income or the excess of their modified adjusted gross income (MAGI) over the threshold amount. The threshold amount is $200,000 for individuals and $250,000 for married couples filing jointly.
Net investment income includes income from interest, dividends, capital gains, rental income, and passive income from businesses. It also includes annuities, royalties, and income from trading financial instruments such as stocks, bonds, and options.
Long-term capital gains tax and short-term capital gains tax are two types of capital gains tax triggers that can trigger the NIIT. Long-term capital gains tax is a tax on the profit made from the sale of an asset held for more than one year. Short-term capital gains tax is a tax on the profit made from the sale of an asset held for less than a year. The NIIT is calculated by taking 3.8 percent of the lesser of the net investment income or the excess of MAGI over the threshold amount.
There are several strategies to reduce the NIIT. One way is to hold investments in tax-deferred accounts such as individual retirement accounts (IRAs) and 401(k)s. Another strategy is to time the sale of assets to minimize the amount of capital gains. Tax-loss harvesting is another strategy that involves selling assets at a loss to offset capital gains.
If your investments recently made any money, you might owe something called the net investment income tax (NIIT) on your profits. It is important to understand the NIIT and its triggers to avoid any surprises come tax season. The NIIT is a complex tax, and it is advisable to consult a tax professional to ensure compliance.
Angel Oak Financial Strategies Income Term Trust (the “Fund”), a closed-end fund traded on the New York Stock Exchange under the ticker symbol "FINS," is one investment vehicle that may be subject to the NIIT. The fund seeks to generate income while preserving capital by investing in a diversified portfolio of fixed-income securities. Investors in the Fund should be aware of the potential NIIT liability on their investment income.
Minnesota recently passed a tax omnibus package that includes a 1% investment income tax. The tax applies to individuals with more than $500,000 in taxable income and married couples with more than $1 million in taxable income. The tax is expected to generate $417 million in revenue over the next biennium. Investors in Minnesota should be aware of the new tax and its potential impact on their investment income.
It seems like everyone owns some form of investment property these days, whether it be stocks, bonds, cryptocurrency, or real estate. It is important to understand the tax implications of these investments to avoid any surprises come tax season. The NIIT is just one of the many taxes that can apply to investment income.
Every year, the Taxpayer Advocate Service (TAS) helps thousands of people with tax problems. The TAS is an independent organization within the Internal Revenue Service (IRS) that helps taxpayers resolve issues with the IRS. The TAS can assist taxpayers with issues related to the NIIT, including calculating the tax, filing the appropriate forms, and resolving disputes with the IRS.
Stellus Capital Investment Corporation (NYSE:SCM) is another investment vehicle that may be subject to the NIIT. The company is a publicly traded business development company that invests in middle-market companies. Investors in Stellus Capital Investment Corporation should be aware of the potential NIIT liability on their investment income.
In conclusion, the NIIT is a tax on net investment income that can apply to a wide range of investment vehicles. It is important to understand the NIIT and its triggers to avoid any surprises come tax season. Investors should consult a tax professional to ensure compliance and explore strategies to reduce their NIIT liability.
