Get Distribution Type Capital Gains Net Investment Income Wilmington Multi-manager Mid-cap Fund Capital

While capital gains may be taxed at a different rate, they are still included in your adjusted gross income, or AGI, and thus can affect your tax bracket and your eligibility for some income-based investment opportunities.

The NIIT is equal to 3.8% of the net investment income of individuals, estates, and certain trusts. Net investment income includes interest, dividends, annuities, royalties, certain rents, and certain other passive business income not subject to the corporate tax.

In general, net investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, and non-qualified annuities. Net investment income generally does not include wages, unemployment compensation, Social Security Benefits, alimony, and most self-employment income.

C corporations pay tax on their annual earnings and then if the earnings are distributed to shareholders as dividends, the earnings are taxed again at the shareholder level. Corporations are not able to deduct amounts paid as dividends to shareholders.

The IC-DISC is tax exempt and is not taxed on the commission income it receives from the operating company. The IC-DISC pays dividends to its shareholders, which are taxed at a 20% rate. The result yields a 17/9.6% permanent tax rate arbitrage (3.8% net investment income tax may yield different results).

Ordinary income tax applies to income earned from regular activities such as wages, salaries and commissions. It also applies to interest earned on bank deposits. Capital gains tax applies when you sell a capital asset such as a stock, bond, real estate or other investment for more than you paid for it.

You can also calculate it yourself by adding together all your investment income and subtracting any related fees and expenses. Then determine your modified adjusted gross income.

Section 1411(c)(1) generally provides that dividend income received by an individual taxpayer from a C corporation is net investment income unless such income is derived in the ordinary course of a trade or business.

The net investment income tax (NIIT) is a 3.8% tax on net investment income, such as capital gains, dividends, and rental and other income after allowable deductions, to the extent the net amount exceeds the MAGI threshold.