Are you liable for net investment income tax? Learn strategies to reduce the risk

Description

Abstract: During the last several years, the 3.8% net investment income tax (NIIT) has ensnared a steadily increasing number of taxpayers. Why? Because when the tax was enacted 11 years ago it applied to “high earners” — defined as single filers with modified adjusted gross income (MAGI) over $200,000 and joint filers with MAGI over $250,000. Those thresholds have never been adjusted for inflation. As a result, the number of taxpayers liable for NIIT has more than doubled during that time. This article explains how the NIIT works and provides strategies to reduce it. A sidebar explores whether a Roth IRA conversion might reduce NIIT liability.