How does the IRS define the length of time that I hold assets or the age of my assets?
- Can I deduct expenses related to my investment income?
- What about my commissions for executed trades? Are they deductible?
- What is the "net investment income tax"?
- What are the statutory amounts?
- What does the IRS consider "net investment income"?
- What happens with my taxes if I fail to report foreign financial assets?
The IRS determines the age of the asset by counting the date after you purchased the asset for a period up to and including the day that you dispose of the asset.
Can I deduct expenses related to my investment income?
Yes, you may deduct expenses related to your investment income, according to the IRS. Investors can generally deduct the expenses of producing taxable investment income, including expenses for investment counseling and advice, legal and accounting fees, and investment newsletters. You may report these expenses on IRS Form 1040, Schedule A, "Itemized Deductions", as miscellaneous deductions, as long as the expenses exceed 2% of your adjusted gross income. Interest paid on money to buy or carry investment property that produces taxable income is also deductible on Schedule A, but the deduction cannot exceed the net investment income.
What about my commissions for executed trades? Are they deductible?
No, commissions and other costs of acquiring or disposing of securities are not deductible, but must be used to figure gain or loss when you dispose of or sell the securities. Please see IRS Publication Topic 703, "Basis of Assets", for additional information.
What is the "net investment income tax"?
The net investment income tax applies a rate of 3.8% to specific net investment income of individuals, estates, and trusts with annual incomes above certain threshold amounts, ranging from $125,000 to $200,000, depending on your filing status. If you are an individual who is exempt from Medicare taxes, you still may be subject to the net investment income tax if you have net investment income and also have modified adjusted gross income above the applicable thresholds.
What are the statutory amounts?
The statutory amounts depend on your filing status. These amounts are $250,000 for married filing jointly, $125,000 for married filing separately, $200,000 for single filers, $200,000 for heads of household, and $250,000 for qualifying widows/widowers with dependent children. Please consult a tax professional for further information.
What does the IRS consider "net investment income"?
The IRS classifies net investment income as interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in the trade of financial instruments or commodities, and income from purely passive business activities.
What happens with my taxes if I fail to report foreign financial assets?
The IRS will impose a 40% penalty, in addition to any taxes owed, for any abusive tax shelters or unreported investments held in foreign countries.