The New Net Investment Income Tax

I suppose the last thing you want to think about as we head into the Christmas season is taxes.  But you may want to start planning so that you are not surprised by a higher tax bill as a result of the Affordable Care Act tax provisions that kicked in last January. As usual, nothing is as simple as it should be. Let’s focus strictly on the new investment income tax, which affects taxpayers whose modified adjusted gross income exceeds $200,000 (single filers) or $250,000 (joint filers).    

What is Net Investment Income? It consists of investment income (interest, dividends, gains from investments, rental income, income from passive activities, etc.) which is reduced by certain expenses, such as investment interest expense, investment advisory and brokerage fees. A tax of 3.8% will be assessed on the lesser of net investment income or portion of modified gross income that exceeds the $200,000 and $250,000 thresholds stated above.

There has been no shortage of confusion and misinformation regarding this new tax, and with 2013 rapidly coming to a close and the filing season soon to follow, the time to separate fact from fiction regarding the new tax is now. Plan to attend our upcoming webinar “Explaining the 3.8% Net Investment Income Tax,” scheduled for January 10, 2014 at Noon EST, presented by Ami Avraham and myself.

Daniel Gibson provides accounting, tax planning and consulting services to real estate and services industries and is a member of the AICPA and New Jersey Society of Certified Public Accountants.

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