Net Investment Income Tax -- Part Three: How to Avoid, Limit, and Minimize the NIIT. Lets discuss some taxpayers and estate planning structures that are NOT subject to the NIIT. The tools of financial planning may be used to avoid the extra 3.8% tax on investment income. The IRS has listed on their website the following exemptions from NIIT: Trusts that are exempt from income taxes imposed by Subtitle A of the Internal Revenue Code (e.g., charitable trusts and qualified retirement plan trusts exempt from tax under section 501, and Charitable Remainder Trusts exempt from tax under section 664). A trust or decedent’s estate in which all of the unexpired interests are devoted to one or more

It is also important to understand which types of income are not considered or included in Net Investment Income. Below is a non-exhaustive list of common types of income that will not be considered Net Investment Income: Wages, unemployment compensation; operating income from a non passive business, Social Security Benefits, alimony, tax-exempt interest, self-employment income, Alaska Permanent Fund Dividends (see Rev. Rul. 90-56, 1990-2 CB 102) and distributions from certain Qualified Plans (those described in sections 401(a), 403(a), 403(b), 408, 408A or 457(b)). In order to actually calculate your NIIT, individuals, estates, and trusts must use Form 8960. The accompanying instructions

The Net Investment Income Tax (NIIT) effects most taxpayers; however, it has a more substantial impact on business owners and investors. Under the Internal Revenue Code (IRC) Section 1411, the NIIT was created and placed into effect on January 1, 2013. The NIIT is applied at a rate of 3.8% to certain net investment income of an individual and for trusts and estates that have income above the statutory thresholds. These thresholds, unlike most, are NOT annually adjusted for inflation. Having Been put into effect in 2013, the NIIT affects income tax returns of individuals, estates and trusts, beginning with their first tax year beginning on (or after) Jan. 1, 2013. The statutory thresholds

With tax day looming (tomorrow, Wednesday July 15), we thought it would be interesting to take a look at some of the strangest deductions that have been challenged by the IRS. Note that some of them actually were deemed legitimate. Not all of the taxpayers claiming these deductions were so lucky. Do you own a junkyard with a rat and snake problem? If you have purchased cat food in order to keep felines around, then you can deduct the cost of the cat food as a business expense. After being prescribed exercise as medical treatment to his ailments, a man installed a swimming pool at his home and successfully deducted it as a medical expense. Keep your receipts for Fido if you are moving due to

If you are one of those people concerned about how you’re going to pay Uncle Sam next week, you have options. If you cannot come up with your payment or cover it with a credit card, you may be allowed to pay off your tax bill over time. The IRS offers a couple different ways to spread out your tax bill over the course of a few months. There are two primary ways to stretch out tax payments if you’re unable to cover it all at once. The one you choose largely depends on your situation. A short term payment plan means that you can pay your tax bill in 120 days or less. If you qualify for this type of payment, applying is easy and can be done so online. The long-term payment version, also called

In late May, the IRS announced that they had sent out approximately 152 million economic relief payments for a total of $258 billion. However, some checks were sent to either deceased taxpayers, foreign-based workers, or incarcerated individuals. The IRS has requested these individuals to, as Spike Lee would say, “Do the right thing”. You may find it interesting that the IRS has requested that these payments be returned, they did not demand for the payments to be returned. This is an interesting point because there is no indication as to whether or not the agency has the authority to require these individuals to return the economic relief payments. For those who have decided to return their