As an investor, you may owe an additional 3.8% tax called net investment income tax (NIIT). But you’ll only owe it if you have investment income and your modified adjusted gross income (MAGI) goes over a certain amount. As an investor, you may owe an additional 3.8% tax called net investment income tax (NIIT).

How can I avoid paying net investment income tax?

Strategies to Reduce Your Modified Adjusted Gross Income:

1. Invest more taxable investment funds in municipal bonds.
2. Invest taxable investment funds in growth stocks.
3. Consider conversion of traditional IRA accounts to ROTH accounts.
4. Invest in life insurance and tax-deferred annuity products.
5. Invest in rental real estate.

Where is net investment income tax reported?

Compute the tax on Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts. Individuals report this tax on Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Tax Return for Seniors; Estates and trusts report this tax on Form 1041, U.S. Income Tax Return for Estates and Trusts.

Who must pay net investment income tax?

The net investment income tax (NIIT) is a 3.8% tax on investment income such as capital gains, dividends, and rental property income. This tax only applies to high-income taxpayers, such as single filers who make more than $200,000 and married couples who make more than $250,000, as well as certain estates and trusts.

Is the net investment income tax a surtax?

The net investment income tax is a 3.8% surtax that is paid in addition to regular income taxes. But not everyone who makes income from their investments is impacted. It only applies to incomes…

How to calculate net investment income tax ( NIIT )?

How to Calculate Net Investment Income Tax The net investment income tax is a 3.8% surtax that is paid in addition to regular income taxes. But not everyone who makes income from their investments is impacted. It only applies to incomes that are above the thresholds highlighted above.

How to report net investment income to the IRS?

If you discover you owe net investment income tax, you must report it on Form 1040. Estates and trusts that owe the tax use Form 1041 for reporting purposes. If you need to send the IRS money to balance your taxes, you will do so the same way you pay your other income taxes.

What kind of tax do you pay on investment income?

559 Net Investment Income Tax. A 3.8 percent Net Investment Income Tax (NIIT) applies to individuals, estates, and trusts that have net investment income above applicable threshold amounts.