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Will your investment income be subject to the new 3.8% NIIT?

Under the health care act, starting in 2013, taxpayers with modified
adjusted gross income (MAGI) over $200,000 per year ($250,000 for joint filers
and $125,000 for married filing separately) may owe a new Medicare contribution
tax, also referred to as the “net investment income tax” (NIIT). The tax equals
3.8% of the lesser of your net investment income or the amount by which your
MAGI exceeds the applicable threshold.

Many of the strategies that can help you save or defer income tax on your
investments can also help you avoid or defer NIIT liability. And because the
threshold for the NIIT is based on MAGI, strategies that reduce your MAGI (such
as making retirement plan contributions) can also help you avoid or reduce NIIT
liability.

The rules on what is and isn’t included in net investment income are somewhat
complex, so please contact us for more information — and to find out what
tax-saving strategies may be effective in your particular situation.

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