investment - Linkenheimer LLP CPAs & Advisors

Reduce the Impact of the 3.8% Net Investment Income Tax

High-income taxpayers face a regular income tax rate of 35% or 37%. And they may also have to pay a 3.8% net investment income tax (NIIT) that’s imposed in addition to regular income tax. Fortunately, there are some ways you may be able to reduce its impact.

Affected taxpayers

The NIIT applies to you only if modified adjusted gross income (MAGI) exceeds:

$250,000 for married taxpayers filing jointly and surviving spouses,
$125,000 for married taxpayers filing separately,
$200,000 for unmarried taxpayers and heads of household.

The amount subject to the tax is the lesser of your net investment income or the amount by which your MAGI exceeds the threshold ($250,000, $200,000, or $125,000) that applies to you.

Net investment income includes interest, dividend, annuity, royalty and rental income, unless those items were derived in the ordinary course of an active trade or business. In addition, other gross income from a trade or business that’s a passive activity is subject to the NIIT, as is income from a business trading in financial instruments or commodities.

There are many types of income that are exempt from the NIIT. For example, tax-exempt interest and the excluded gain from the sale […]

By Linkenheimer LLP|2023-06-06T14:52:58+00:00June 6th, 2023|investment, tax planning|0 Comments

Tax News for Investors and Users of Cryptocurrency

If you’re a crypto investor or user, you may have noticed something new on your tax return this year. And you may soon notice a new form reporting requirements for digital assets.

Check the box

Beginning with tax year 2022, taxpayers must check a box on their tax returns indicating whether they received digital assets as a reward, award or payment for property or services or whether they disposed of any digital assets that were held as capital assets through sales, exchanges or transfers. If the “yes” box is checked, taxpayers must report all income related to the digital asset transactions.

New information form

Under the broker information reporting rules, brokers must report transactions in securities to both the IRS and investors. Transactions are reported on Form 1099-B. Legislation enacted in 2021 extended these reporting rules to cryptocurrency exchanges, custodians and platforms and to digital assets such as cryptocurrency. The new rules were scheduled to be […]

By Linkenheimer LLP|2023-04-25T15:54:16+00:00April 25th, 2023|crypto, investment|0 Comments

Is it a Good Time for a Roth Conversion?

The downturn in the stock market may have caused the value of your retirement account to decrease. But if you have a traditional IRA, this decline may provide a valuable opportunity: It may allow you to convert your traditional IRA to a Roth IRA at a lower tax cost.

Traditional vs. Roth

Here’s what makes a traditional IRA different from a Roth IRA:

Traditional IRA. Contributions to a traditional IRA may be deductible, depending on your modified adjusted gross income (MAGI) and whether you (or your spouse) participate in a qualified retirement plan, such as a 401(k). Funds in the account can grow tax deferred.

On the downside, you generally must pay income tax on withdrawals. In addition, you’ll face a penalty if you withdraw funds before age 59½ — unless you qualify for a handful of exceptions — and you’ll face an even larger penalty if you don’t take your […]

By Linkenheimer LLP|2022-06-10T22:02:57+00:00June 10th, 2022|investment, ira, tax planning|0 Comments

Selling Mutual Fund Shares: What Are The Tax Implications?

If you’re an investor in mutual funds or you’re interested in putting some money into them, you’re not alone. According to the Investment Company Institute, a survey found 58.7 million households owned mutual funds in mid-2020. But despite their popularity, the tax rules involved in selling mutual fund shares can be complex.

What are the basic tax rules?

Let’s say you sell appreciated mutual fund shares that you’ve owned for more than one year, the resulting profit will be a long-term capital gain. As such, the maximum federal income tax rate will be 20%, and you may also owe the 3.8% net investment income tax. However, most taxpayers will pay a tax rate of only 15%.

When a mutual fund investor sells shares, gain or loss is measured by the difference between the amount realized from the sale and the investor’s basis in the shares. One challenge is that certain mutual fund transactions are treated as sales even though they might not be thought of as such. Another problem may arise in determining your basis for shares sold.

When does a sale occur?

It’s obvious that a sale occurs when an investor redeems all shares in a […]

By Linkenheimer LLP|2022-04-08T18:29:41+00:00April 8th, 2022|income tax, investment|0 Comments

Defer Tax with a Like-Kind Exchange

Do you want to sell commercial or investment real estate that has appreciated significantly? One way to defer a tax bill on the gain is with a Section 1031 “like-kind” exchange where you exchange the property rather than sell it. With real estate prices up in some markets (and higher resulting tax bills), the like-kind exchange strategy may be attractive.

A like-kind exchange is any exchange of real property held for investment or for productive use in your trade or business (relinquished property) for like-kind investment, trade or business real property (replacement property).

For these purposes, like-kind is broadly defined, and most real property is considered to be like-kind with other real property. However, neither the relinquished property nor the replacement property can be real property held primarily for sale.

Important change

Under the Tax Cuts and Jobs Act, tax-deferred Section 1031 treatment is no longer allowed for exchanges of personal property — such as equipment […]

By Linkenheimer LLP|2022-01-07T22:02:30+00:00January 7th, 2022|1031, investment, New Tax Laws, tcja|0 Comments