Tax laws can be so complex, and it’s super helpful to break them down like this. Understanding how different policies can impact our finances is crucial for making informed decisions.
Making profitable investments during this time of political change can be risky without that insight. For me, working with an adviser is the best first step to navigate these complexities and make informed choices.
I think having an investment advisor is the way to go. I've been with one because I lack the expertise for the market. I made over $490K during the recent dip, highlighting that there's more to the market than we average folks know.
I wasn’t aware of NIIT before and your explanation was helpful. Shouldn’t the IRS just create 4 LTCG tax brackets? 0%, 15%, 18.8%, and 23.8% is really how the math plays out.
They should, but the tax code is typically a pile of codes plopped onto each other, and almost never a revision of the existing tax code. The Alternative Minimum Tax code is an example of a tax code that paralleled taxes, so you ended up doing (almost) TWO sets of taxes. :/
@@Travlinmo Obama and the leftos. Wealth redistribution at it's finest. They prop the bottom feeders for votes and pay off big corps for donations. People in the middle are stuck with the bill.
Thank you. Very easy to follow and quite helpful. Anyone who complains about an additional 3% tax can go cry a river. At least they are not being charged 37% (regular income)
That was actually very well (and quickly) explained. Thank you! As taxes go, this is very reasonable and a good solution for funding the ACA. Yes, it might catch the occasional retiree or worker that are on the wealthy side, but this is really easy to avoid at those levels. For your examples, instead of selling 400k of stock in one year (why do that anyway?) just sell half of that or so to keep under the limit. Real estate? Well, either suck it up or do a 1031. An even more advanced route is to borrow against the asset while selling part of it, then sell the remaining part next year (or several years). But if you're moving $10M, $100M, $1B... you aren't going to break it up like this. This will catch the very wealthy far more, which is what it is intended to do.
you don't have to be very wealthy for this to apply to you. if you earn 250K in salary after your standard deduction then qualified dividends from investments or selling anything with ltcgs will be taxed at 15% plus 3.8%.
Great video. I'm in the midst of trying to spend the money I saved for retirement (definitely a first world problem) and I now understand NITT, unfortunately...
if you have money market fund interest that is already included in your income subject to marginal tax but your magi is above 250K is that also subject to NIIT even if it is not being taxed at ltcgs rates?
5:41 So the $100k capital gain is progressive where 70k is taxesd at 15% and the $30k is 18.8%? I was under the impression all $100k of the cap gain would be 18.8%.
Can you confirm for me, you're talking about the portion of the investment sale that is gain, not the total, right? I.e., in your first example let's assume that Charlie's stock has doubled in value since he bought it. To reach the $400k number you gave, he has to actually sell $800k of stock in 2023 and subtract his cost basis to arrive at the $400k gain. So in your example he's actually moving $800k into his checking account in a single year. So if you target your sales to the threshold amounts, your "spending money" can actually be much higher than the threshold depending on what your cost basis is.
Great question...the thresholds have NEVER been increased since this tax was created. There's some political history to this. During the 2008 presidential campaign, $250k became the line in the sand for "high income" households during the final months as the candidates debated. I believe this is mainly why $250k ($200k for single filers) was the chosen number when the net investment income tax was created.
If I do NUA with a cost basis of 30k and also sell 50k of stock to help pay the taxes of the 200k of my 401k I am converting to a roth plus I have 20k in dividends. Is my MAGI going to be 300k and thus I will also owe NIIT on 100k? Or does the NUA cost basis not count?
I’m not accountant, but I understand that $$amount withdrawn from a retirement account… Although subject to ordinary income tax because they were “qualified” untaxed earnings allowed to grow tax free to encourage retirement savings….These retirement savings together with the growth are taxed the same as other earnings, are not includable in the NIIT calculation. Why? Because the funds originated from a retirement account)
Short-term capital gains tax is a tax on profits from the sale of an asset held for one year or less. Short-term capital gains are taxed according to your ordinary income tax bracket: 10%, 12%, 22%, 24%, 32%, 35% or 37%.
@@af31nsYou did not explicitly answer the question (considering that the long term capital gains brackets are often shown without mentioning the 3.8% NIIT). Is the answer to OP’s question ‘no’?
Additional medicare tax is based on wage and self-employment income, not total income, so it wouldn't be charged on investment income. In a sense, it's an inverse or counterpart to NIIT. Of course if you have both high wages and high investment income then you do get hit with both taxes.
Tax laws can be so complex, and it’s super helpful to break them down like this. Understanding how different policies can impact our finances is crucial for making informed decisions.
Making profitable investments during this time of political change can be risky without that insight. For me, working with an adviser is the best first step to navigate these complexities and make informed choices.
I think having an investment advisor is the way to go. I've been with one because I lack the expertise for the market. I made over $490K during the recent dip, highlighting that there's more to the market than we average folks know.
Hmmm this is quite interesting, Please can you leave the info of your investment advisor here? I’m in dire need for one.
Nicole Anastasia Plumlee can't divulge much. Most likely, the internet should have her basic info, you can research if you like.
I just googled her and I'm really impressed with her credentials; I reached out to her since I need all the assistance I can get.
I finally understand who is required to pay the 3.8%. Thank you so very much.
Very simple, very easy.
I was not aware of NIIT. While my income has yet to reach $200,000, this is still important information.
well done! thank you
I wasn’t aware of NIIT before and your explanation was helpful. Shouldn’t the IRS just create 4 LTCG tax brackets? 0%, 15%, 18.8%, and 23.8% is really how the math plays out.
They should, but the tax code is typically a pile of codes plopped onto each other, and almost never a revision of the existing tax code. The Alternative Minimum Tax code is an example of a tax code that paralleled taxes, so you ended up doing (almost) TWO sets of taxes. :/
That would not work because NIIT applies to many other types of income (any passive investment) in addition to LTCG.
NIIT also applies to interest and dividends, not just LTCG.
Outstanding explanation
Great Video!
Thanks! Glad it was helpful.
Another great explanation!! Thank you so much.
Very well explained. Thank you for posting this video.
Glad it was helpful!
I just learned about the NIIT while filing my taxes. goddamit, curse the IRS!
Blame Obamacare.
Wouldn’t it be curse congress?
@@Travlinmo Obama and the leftos. Wealth redistribution at it's finest. They prop the bottom feeders for votes and pay off big corps for donations. People in the middle are stuck with the bill.
The IRS doesn’t write the tax code; they just implement it. You should curse Congress.
Great teaching video. I watch a lot of these, you are at the top of your class!
You always do a fantastic job!!! Thank you! :)
Thank you! Cheers!
Thank you. Very easy to follow and quite helpful.
Anyone who complains about an additional 3% tax can go cry a river. At least they are not being charged 37% (regular income)
Someone could certainly be in the 37% bracket with interest income and also get hit with the 3.8%.
What about deductions for improvements made to investment property prior to selling it, is there a list of approved improvements i can look into?
That was actually very well (and quickly) explained. Thank you!
As taxes go, this is very reasonable and a good solution for funding the ACA. Yes, it might catch the occasional retiree or worker that are on the wealthy side, but this is really easy to avoid at those levels. For your examples, instead of selling 400k of stock in one year (why do that anyway?) just sell half of that or so to keep under the limit. Real estate? Well, either suck it up or do a 1031. An even more advanced route is to borrow against the asset while selling part of it, then sell the remaining part next year (or several years). But if you're moving $10M, $100M, $1B... you aren't going to break it up like this. This will catch the very wealthy far more, which is what it is intended to do.
you don't have to be very wealthy for this to apply to you. if you earn 250K in salary after your standard deduction then qualified dividends from investments or selling anything with ltcgs will be taxed at 15% plus 3.8%.
Great video. I'm in the midst of trying to spend the money I saved for retirement (definitely a first world problem) and I now understand NITT, unfortunately...
@@tchristell glad the video was helpful.
I agree about the long term cap gain tax table and needing to add in that extra level at $250k for married joint filers.
if you have money market fund interest that is already included in your income subject to marginal tax but your magi is above 250K is that also subject to NIIT even if it is not being taxed at ltcgs rates?
Thank you! I get it now!!
Great video Ted. Quick question: Is IRA to ROTH IRA conversion subject to NIIT tax, since taking out IRA is seen as a "distribution"?
Excellent review
3:37 Wouldn't they be able to split the stock sale over 2 tax year? 12/31, 1/2
Yes, that definitely could be a planning approach.
Can’t figure out what goes in line 9b. The IRS instructions are unclear. Isn’t it just your state income tax x amount of interest/ cap gains.?
5:41 So the $100k capital gain is progressive where 70k is taxesd at 15% and the $30k is 18.8%? I was under the impression all $100k of the cap gain would be 18.8%.
I think his point was that only the amount over the $250k married filing jointly threshold is subject to the 3.8% NIIT; $30k.
excellent video.
Can you confirm for me, you're talking about the portion of the investment sale that is gain, not the total, right? I.e., in your first example let's assume that Charlie's stock has doubled in value since he bought it. To reach the $400k number you gave, he has to actually sell $800k of stock in 2023 and subtract his cost basis to arrive at the $400k gain. So in your example he's actually moving $800k into his checking account in a single year. So if you target your sales to the threshold amounts, your "spending money" can actually be much higher than the threshold depending on what your cost basis is.
Correct, basis is not taxable, only gains.
Thanks for the video. For your examples, you're not considering the standard deduction in the MAGI?
will they increase the NIIT threshold anytime soon. 200k seems low for an individual nowadays.
Great question...the thresholds have NEVER been increased since this tax was created. There's some political history to this. During the 2008 presidential campaign, $250k became the line in the sand for "high income" households during the final months as the candidates debated. I believe this is mainly why $250k ($200k for single filers) was the chosen number when the net investment income tax was created.
If I do NUA with a cost basis of 30k and also sell 50k of stock to help pay the taxes of the 200k of my 401k I am converting to a roth plus I have 20k in dividends. Is my MAGI going to be 300k and thus I will also owe NIIT on 100k? Or does the NUA cost basis not count?
I’m not accountant, but I understand that $$amount withdrawn from a retirement account… Although subject to ordinary income tax because they were “qualified” untaxed earnings allowed to grow tax free to encourage retirement savings….These retirement savings together with the growth are taxed the same as other earnings, are not includable in the NIIT calculation. Why? Because the funds originated from a retirement account)
does NIIT apply to crypto/bitcoin gains?
yes those are lumped into capital gains along with the rest, so are subject to NIIT if you hit the threshold
Great Video! I had not idea NIIT existed, I hate it. Is it only for Long-term Cap Gains or does it also apply to Short-term cap gains?
Short-term capital gains tax is a tax on profits from the sale of an asset held for one year or less. Short-term capital gains are taxed according to your ordinary income tax bracket: 10%, 12%, 22%, 24%, 32%, 35% or 37%.
@@af31nsYou did not explicitly answer the question (considering that the long term capital gains brackets are often shown without mentioning the 3.8% NIIT). Is the answer to OP’s question ‘no’?
and Additional Medicare tax....0.9%. That one hurts because its based on total income over 250K.
Additional medicare tax is based on wage and self-employment income, not total income, so it wouldn't be charged on investment income. In a sense, it's an inverse or counterpart to NIIT. Of course if you have both high wages and high investment income then you do get hit with both taxes.
😮
Aww shucks, I don’t make enough moorland to pay this 😂😂😂😂
That’s awesome… why don’t they just take all our money!!! Tax those responsible, hard working people!!! They make too much!!!
Repeal ACA and NIIT!!
This is another bad tax to hurt the middle class especially after they start RMDs.
Middle class is bringing home more than $250K each year?