Get Ready for the Net Investment Income Tax

Are you ready for the impact of the net investment income tax? This new 3.8% tax will appear for the first time on 2013 federal returns — and you don’t want to wait until next April to find out if you’ll have to pay.

Here’s a quick refresher so you can begin to assess your exposure.

  • When the tax applies. When you plan to file a joint return, report investment income such as capital gains, dividends or interest, and expect this year’s modified adjusted gross income to exceed $250,000, you may be affected by the net investment income tax. (The MAGI threshold is $200,000 when you file single or head of household, and $125,000 for married filing separately.)

    What’s MAGI? In this case, it’s the amount you get when you add any excludable foreign income to your adjusted gross income. You’re already familiar with adjusted gross income — that’s the income on your return less above-the-line deductions such as moving expenses, alimony, or student loan interest.

  • What you can do. If you’re coming up to the threshold, consider increasing your contributions to retirement plans. Installment sales, investments in municipal bonds, and timing asset sales can also help reduce your adjusted gross income.

Please contact us for more suggestions. We’ll run a tax projection, explain your options, and help you come up with a proactive plan.