Net Investment Income Tax

If you own and operate a business and do not know about the surtax on net investment income, I suggest you read an article by Thomas W. Shaver, Esq. of Hartog & Baer “Qualifying as a Trade or Business Under the Final Net Investment Income Tax Regulations," California Trust and Estates Quarterly, Volume 20,  Issue No. 2.  (This article should be available for on-line review in the not too distant future at trustslaw.calbar.ca.gov. ) Following are selected excerpts from that article:

The 3.8% surtax is imposed on the net investment income of individuals, estates and trusts. The tax is imposed on married taxpayers on the lesser of total net investment income or modified adjusted gross income in excess of $250,000. The income threshold is $200,000 for all other individual taxpayers. Trusts and estates may be liable for the surtax if trust net income is subject to the highest fiduciary income tax bracket. The highest income tax bracket begins at $12,150 in 2014.
Income from an active trade or business is excluded from the definition of net investment income and therefore exempt from the net investment income surtax. However, income from a passive activity is excluded from the definition of a trade or business and remains subject to the net investment income surtax.
If you believe your business may be subject to the surtax on net investment income, I again recommend that you read the above article. You may also want to discuss this issue with your accountant.

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