Planning for the net investment income tax

Description

Abstract: Starting in 2013, high-income taxpayers are subject to a new 3.8% Medicare tax on some or all of their net investment income (NII). For individual tax purposes, there are a variety of planning options for reducing or even eliminating the impact of the NII tax (NIIT). For trusts, options are more limited, but there are nevertheless several strategies for reducing a trust’s taxable NII. This article discusses ways to reduce the NIIT’s potential impact on personal wealth management and retirement plans, while a sidebar looks at the IRS’s stance regarding a NIIT exemption for income from a trade or business in which a taxpayer materially participates.