Investment and Finance
The most frequently asked tax questions related to Investment and Finance
What are some common types of income that are not Net Investment Income?
Asked Wednesday, August 21, 2013 by an anonymous userCPA Answer:
Wages, unemployment compensation; operating income from a nonpassive business, Social Security Benefits, alimony, tax-exempt interest, self-employment income and distributions from certain Qualified Plans.
How will I report and pay the Net Investment Income Tax?
Asked Wednesday, August 21, 2013 by an anonymous userCPA Answer:
For individuals, the tax will be reported on, and paid with Form 8960 and on Form 1040.
For Estates and Trusts, the tax will be reported on, and paid with, the Form 1041.
For Estates and Trusts, the tax will be reported on, and paid with, the Form 1041.
When did the Net Investment Income Tax take effect ?
Asked Wednesday, August 21, 2013 by an anonymous userCPA Answer:
The Net Investment Income Tax went into effect on Jan. 1, 2013. The NIIT affects income tax returns of individuals, estates and trusts for their first tax year beginning on (or after) Jan. 1, 2013. It does not affect income tax returns for the 2012 taxable year filed in 2013.
Does the tax have to be withheld from wages?
Asked Wednesday, August 21, 2013 by an anonymous userCPA Answer:
No, but you may request that additional income tax be withheld from your wages.
What individuals are subject to the Net Investment Income Tax ?
Asked Wednesday, August 21, 2013 by an anonymous userCPA Answer:
Individuals will owe the tax if they have Net Investment Income and also have modified adjusted gross income over the following thresholds:
Married Filing jointly & Qualifying widow(er) $250,000
Single or Head of Household $200,000
Married filing separately $125,000
Married Filing jointly & Qualifying widow(er) $250,000
Single or Head of Household $200,000
Married filing separately $125,000
Will I have to pay both the 3.8% Net Investment Income Tax and the additional .9% Medicare tax?
Asked Wednesday, August 21, 2013 by an anonymous userCPA Answer:
You may be subject to both taxes, but not on the same type of income.
The 0.9% Additional Medicare Tax applies to individuals’ wages, compensation and self-employment income over certain thresholds, but it does not apply to income items included in Net Investment Income
What investment expenses are deductible in computing Net Investment Income?
Asked Wednesday, August 21, 2013 by an anonymous userCPA Answer:
In order to arrive at Net Investment Income, Gross Investment Income is reduced by deductions that are properly allocable to items of Gross Investment Income.
Examples of properly allocable deductions include investment interest expense, investment advisory and brokerage fees, expenses related to rental and royalty income, and state and local income taxes properly allocable to items included in Net Investment Income.
Examples of properly allocable deductions include investment interest expense, investment advisory and brokerage fees, expenses related to rental and royalty income, and state and local income taxes properly allocable to items included in Net Investment Income.
What kinds of gains are included in Net Investment Income?
Asked Wednesday, August 21, 2013 by an anonymous userCPA Answer:
To the extent that gains are not otherwise offset by capital losses, the following gains are common examples of items taken into account in computing Net Investment Income:
1.Gains from the sale of stocks, bonds, and mutual funds.
2.Capital gain distributions from mutual funds.
3.Gain from the sale of investment real estate (including gain from the sale of a second home that is not a primary residence).
Gains from the sale of interests in partnerships and S corporations (to the extent you were a passive owner).
1.Gains from the sale of stocks, bonds, and mutual funds.
2.Capital gain distributions from mutual funds.
3.Gain from the sale of investment real estate (including gain from the sale of a second home that is not a primary residence).
Gains from the sale of interests in partnerships and S corporations (to the extent you were a passive owner).
Does this tax apply to gain on the sale of a personal residence?
Asked Wednesday, August 21, 2013 by an anonymous userCPA Answer:
The Net Investment Income Tax will not apply to any amount of gain that is excluded from gross income for regular income tax purposes.
The pre-existing statutory exclusion in IRC section 121 exempts the first $250,000 ($500,000 in the case of a married couple) of gain recognized on the sale of a principal residence from gross income for regular income tax purposes and, thus, from the NIIT.
The pre-existing statutory exclusion in IRC section 121 exempts the first $250,000 ($500,000 in the case of a married couple) of gain recognized on the sale of a principal residence from gross income for regular income tax purposes and, thus, from the NIIT.