What Taxpayers Need to Know About Net Investment Income Tax

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Now that the 2012 tax season is over, midyear is the best time to focus on tax planning for 2013. Wells & Associates CPA, LLC says one of the most significant tax changes this year is the Net Investment Income Tax, which went into effect on January 1, 2013 as a result of health care reform enacted in 2010.

Wells & Associates, CPA, LLC advises taxpayers on the new Net Investment Income Tax.

The Net Investment Income Tax is a 3.8 percent tax on certain net investment income of individuals, estates, and trusts with income above statutory threshold amounts, referred to as modified adjusted gross income (MAGI). In general, investment income includes, but is not limited to: interest, dividends, long and short term capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities, and passive business activities such as rental income or income derived from royalties.

Wages, unemployment compensation, operating income from a non-passive business, Social Security Benefits, alimony, tax-exempt interest, self-employment income, Alaska Permanent Fund Dividends, and distributions from certain Qualified Plans are not included in net investment income.

Individuals whose modified adjusted gross income exceeds $250,000 (married filing jointly) or $200,000 (single filers) are taxed at a flat rate of 3.8 percent on investment income. Net Investment Income Tax is paid in addition to other taxes owed and threshold amounts (e.g. $200,000 for single filers) are not indexed for inflation.

Because investment income is generally not subject to withholding, taxpayers should be aware that the NIIT might affect tax liability for the 2013 tax year. In addition, it's possible that even lower income taxpayers not meeting the threshold amounts could be subject to the tax if they receive a windfall such as a one-time sale of assets that bumps their MAGI up high enough.

For more information on the nuances on the Net Investment Income Tax, give the tax professionals at Wells & Associates, CPA, LLC a call today at 864-574-6768.

About the company:

Wells & Associates CPA LLC started serving the Spartanburg area in 2002. Randy Wells and John McArthur have decades of small business, public and governmental experience in accounting, tax preparation and tax representation.

Their services encompass nearly every aspect of financial life. They are experienced in all matters of accounting services, bookkeeping services, CPA services and taxation, IRS problem resolution, estates and trusts, small business advice, financial planning and investment, real estate and business sales. For more information, please visit their website at http://www.wacpallc.com.

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