You may be able to reduce or minimize the amount of the Net Investment Income Tax (NIIT) you owe in the future by focusing on investments that don’t qualify for the tax. Generally, eligible investment includes interest, dividends, capital gains, rent and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities and passive income from businesses. Tax exempt interest is not included in the NIIT calculation.
You might be able to reduce the NIIT by:
Taking an active role in your business
Passive income such as interest and dividends can be subject to NIIT, even interest and dividend income derived from your business. However, if you “materially participate” in your business, you can eliminate passive income from the equation.
Investing in municipal or other tax exempt bonds