If you have income from investments, you may be subject to the Net Investment Income Tax. You may owe this tax if you receive investment income and your income for the year is more than certain limits.
Net Investment Income Tax. The law requires a tax of 3.8 percent on the lesser of either your net investment income or the amount by which your modified adjusted gross income exceeds a threshold amount based on your filing status.
- Income threshold amounts. You may owe this tax if your modified adjusted gross income is more than the following amount for your filing status:
|Filing Status||Threshold Amount|
|Single or Head of household||$200,000|
|Married filing jointly||$250,000|
|Married filing separately||$125,000|
|Qualifying widow(er) with a child||$250,000|
- Net investment income. This amount generally includes income such as:
- Capital gains,
- Rental and royalty income, and
- Non-qualified annuities.
This list is not all-inclusive. Net investment income normally does not include wages and most self-employment income. It does not include unemployment compensation, Social Security benefits or alimony. It also does not include any gain from the sale of your main home that you exclude from your income.
Refer to Form 8960, Net Investment Income Tax, to see if this tax applies to you. You can check the form’s instructions for the details on how to figure the tax.
- How to report. If you owe the tax, you must file Form 8960 with your federal tax return. If you had too little tax withheld or did not pay enough estimated taxes, you may have to pay an estimated tax penalty.
What You Should Know about Capital Gains and Losses
When you sell a capital asset the sale results in a capital gain or loss. A capital asset includes most property you own for personal use or own as an investment.
- Capital Assets. Capital assets include property such as your home or car, as well as investment property, such as stocks and bonds.
- Gains and Losses. A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset.
- Net Investment Income Tax. You must include all capital gains in your income and you may be subject to the Net Investment Income Tax. This tax applies to certain net investment income of individuals, estates and trusts that have income above statutory threshold amounts. The rate of this tax is 3.8 percent. For details visit IRS.gov.
- Deductible Losses. You can deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of property that you hold for personal use.
- Long and Short Term. Capital gains and losses are either long-term or short-term, depending on how long you held the property. If you held the property for more than one year, your gain or loss is long-term. If you held it one year or less, the gain or loss is short-term.
- Net Capital Gain. If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a net capital gain.
- Tax Rate. The capital gains tax rate usually depends on your income. The maximum net capital gain tax rate is 20 percent. However, for most taxpayers a zero or 15 percent rate will apply. A 25 or 28 percent tax rate can also apply to certain types of net capital gains.
- Limit on Losses. If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.
- Carryover Losses. If your total net capital loss is more than the limit you can deduct, you can carry over the losses you are not able to deduct to next year’s tax return. You will treat those losses as if they happened in that next year.
- Forms to File. You often will need to file Form 8949, Sales and Other Dispositions of Capital Assets, with your federal tax return to report your gains and losses. You also need to file Schedule D, Capital Gains and Losses with your tax return.
What You Should Know about the AMT
Even if you’ve never paid the Alternative Minimum Tax, before, you should not ignore this tax. Your taxes may have changed so that this may be the year that you need to pay AMT. You may have to pay this tax if your income is above a certain amount. AMT attempts to ensure that taxpayers who claim certain tax benefits pay a minimum amount of tax.
Here are some things that you should know about the AMT:
- When AMT applies. You may have to pay the AMT if your taxable income, plus certain adjustments, is more than your exemption amount. Your filing status and income determine the amount of your exemption. In most cases, if your income is below this amount, you will not owe AMT.
- Exemption amounts. The 2014 AMT exemption amounts are:
- $52,800 if you are Single or Head of Household.
- $82,100 if you are Married Filing Joint or Qualifying Widow(er).
- $41,050 if you are Married Filing Separate.
You will reduce your AMT exemption if your income is more than certain limits.
- Use IRS e-file. Keep in mind that AMT rules are complex. The easiest way to prepare and file your tax return is to use IRS e-file. The tax software you use to e-file will figure AMT for you if you owe the tax.
- Try the tool. Use the AMT Assistant tool on IRS.gov to find out if you need to pay the tax.
- Use the right forms. If you owe AMT, you usually must file Form 6251, Alternative Minimum Tax – Individuals. Some taxpayers who owe AMT can file Form 1040A and use the AMT Worksheet in the instructions.
Learn more about the AMT on IRS.gov. Also, see the Form 6251 instructions. If you e-file your tax return you don’t need any paper forms to mail to the IRS. If you do need a paper form, you can visit IRS.gov/forms to view, download and print what you need right away.
Seven Tax Tips about Reporting Foreign Income
Are you a U.S. citizen or resident who worked abroad last year? Did you receive income from a foreign source in 2014? If you answered ‘yes’ to either of those questions here are seven tax tips you should know about foreign income:
- Report Worldwide Income. By law, U.S. citizens and residents must report their worldwide income. This includes income from foreign trusts, and foreign bank and securities accounts.
- File Required Tax Forms. You may need to file Schedule B, Interest and Ordinary Dividends, with your U.S. tax return. You may also need to file Form 8938, Statement of Specified Foreign Financial Assets. In some cases, you may need to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts. See IRS.gov for more information.
- Review the Foreign Earned Income Exclusion. If you live and work abroad, you may be able to claim the foreign earned income exclusion. If you qualify, you won’t pay tax on up to $99,200 of your wages and other foreign earned income in 2014. See Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, for more details.
- Don’t Overlook Credits and Deductions. You may be able to take a tax credit or a deduction for income taxes you paid to a foreign country. These benefits can reduce your taxes if both countries tax the same income.
- Use IRS Free File. Almost everyone can prepare and e-file their U.S. federal tax returns for free by using IRS Free File. If you make $60,000 or less, you can use brand-name tax software. If you earn more, you can use Free File Fillable Forms, an electronic version of IRS paper forms. Some Free File software products and fillable forms also support foreign addresses for those who live abroad. Free File is available only through the IRS.gov website.
- Tax Filing Extension is Available. If you live outside the U.S. and can’t file your tax return by April 15, you may qualify for an automatic two-month extension of time to file. That will give you until June 15, 2015, to file your U.S. tax return. This extension also applies to those serving in the military outside the U.S. You will need to attach a statement to your return explaining why you qualify for the extension.
- Get IRS Tax Help. Check the international services Web page for the types of help the IRS provides. For all free IRS tax tools and products, visit IRS.gov at any time.
Traders in Securities more info here: http://www.irs.gov/taxtopics/tc429.html
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