Stotlar & Stotlar Newsletters

To Our Tax Clients

Beginning in 2013, a NEW tax, the “net investment income tax”, or NIT, applies at a rate of 3.8% of the net investment income of individuals, estates and trusts with income above certain statutory amounts. The thresholds are: $ 200,000 for single taxpayers, $ 250,000 for married filing jointly and $ 11,950 for trusts. The NIT is based on the amount of net investment income which exceeds the threshold.

The NIT applies to interest, dividends, capital gains, rental and royalty income, nonqualified annuities, income from businesses involved in trading of financial instruments and businesses that are passive activities for the taxpayer. IT DOES NOT apply to wages, unemployment compensation, active business income, social security benefits, tax exempt interest or distributions from retirement plans. Gains included are those from the sale of stocks, bonds, and mutual funds; capital gain distributions from mutual funds; gains from sales of investment real estate (including a second home); and gains from the sales of certain partnership and S corporation interests.

Trusts that have the option of either passing their income to beneficiaries (who would then pay the tax) or retaining the income and paying the tax themselves may benefit from distributing more income to these beneficiaries since the thresholds for trusts is so low.

Individuals will need to factor this additional tax into their fourth quarter estimated tax payment to guarantee that they will not be subject to an underpayment penalty.

Final Treasury Regulations should be forthcoming this month. However, if you have questions about how this new tax will affect you, please contact Stotlar & Stotlar, S.C

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Contact Stotlar & Stotlar, S.C. if you have questions regarding this matter.

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