In this portion of our 2023 Tax Planning series, we outline the details regarding Net Investment Income Tax and Alternative Minimum Tax.
A Note from Us: At Akif CPA, we specialize in tax return preparation for individuals, families, and businesses. We are currently accepting new clients. Please contact us today if you require tax help.
2023 Net Investment Income Tax (NIIT)
Investors may owe an additional 3.8% tax in 2023. This tax is referred to as Net Investment Income Tax (NIIT).
Who does NIIT affect?
NIIT affects…
- Individuals
- Estates
- Trusts
…above certain thresholds.
Those thresholds are typically:
- $200,000 for single filers and heads of household
- $250,000 for married taxpayer filing jointly
Important to note: if you are concerned you will be subject to NIIT tax in 2023, it’s important to speak to a CPA. You will be subject to NIIT tax in 2023 if your net income exceeds these thresholds, and are obligated to pay the 3.8% tax on the lesser of net investment income or the excess of income over these thresholds.
What Investment Items are Subject to NIIT?
- Capital Gains
- Interest
- Dividends
- Net Rental Income
- Royalty Income
- Passive Income
2023 Alternative Minimum Tax (AMT)
Alternative Minimum Tax (AMT) ensures that every filer pays a minimum level of tax, even in the event of exclusions, deductions, and credits that reduce their overall tax burden. This is typically handled through add-backs.
How is AMT Calculated
The AMT adds back certain non-taxable income, while also removing some deductions. This is a complex calculation that is circumstance-dependent. We highly recommend turning to a CPA for help on this.
According the IRS the AMT is calculated by…
“1. Computing taxable income eliminating or reducing certain exclusions and deductions, and taking into account differences with respect to when certain items are used to compute regular taxable income and alternative minimum taxable income (AMTI),
2. Subtracting the AMT exemption amount,
3. Multiplying the amount computed in (2) by the appropriate AMT tax rates, and
Subtracting the AMT foreign tax credit.”
See more about AMT here: Topic No. 556, Alternative Minimum Tax
2023 AMT Exemption Limits
For 2023, the AMT exemption increases to $81,300 for single filers, and $126,500 for married couples filing jointly. This exemption phases out at $587,150 for single filers, and $1,156,300 for married couples filing jointly (adjusted gross income).
Important note: Some AMT triggers are controllable. Speak with a CPA if you require tax planning help.
