Monthly Archives: January 2015

Prepare for the Net Investment Income Tax!

Tuesday, January 27, 2015

We create customized plans based on each client’s unique goals

As always, strategic investment requires careful planning. This is extremely pertinent as the Affordable Care Act initiated a new tax that may reduce investment profits if not considered accordingly. The Net Investment Income Tax (NIIT) creates an additional 3.8% tax on income for some high income taxpayers who have investment income. Generally if you are married and have a Modified Adjusted Gross Income (MAGI) above $250,000 ($200,000 for single taxpayers) and you have investment income, your plan must address this issue.  As we design, implement and monitor investment and wealth management strategies with our clients, we analyze the impact of this tax just as I check the weather before heading to the river to fly fish.


Our planning efforts for clients in November and December each year focus on various deferral and avoidance strategies before year end to prevent the client from exceeding the MAGI levels where the NII tax is due. We have helped clients structure asset sales to defer recognition of income, plan retirement payments over time rather than in a lump sum, and sell stocks and other investments with losses to offset other portfolio gains. We facilitated gifts of appreciated property to charity and accelerated retirement plan contributions to reduce taxable income. In one instance where cash was limited, the client borrowed funds against the bond portfolio to increase retirement plan contributions because the tax savings paid in the short-term interest cost tenfold. We have also helped business owners utilize other traditional tax deferral methods such as accelerating depreciation, paying employee bonuses or accelerating other discretionary expenses in high income years.  The goal of these strategies has been to reduce MAGI and avoid the additional 3.8% tax.


Our focus in January and February is to ensure that client portfolios and other assets are structured in a way to minimize the Net Investment Income Tax for the current year.  Income subject to the tax includes interest, dividends, net capital gains, rental and royalty income, and business income from passive activities. We analyze clients portfolios and other assets to minimize the NII taxable items.  Items that are not included in this tax base include operating income from a non-passive business, tax-exempt interest, self –employment income, and distributions from qualified retirement plans. Consequently, we strive to maximize these items.


Making your children aware of the tax is a great opportunity to prepare them for ultimately receiving and preserving the wealth you have created. With the complexities of all parent/child dynamics, I’ve found that even if the parents have the right answers when it comes to handling money matters, having the children get the answers from someone who isn’t a parent can make a big difference. If your children need to discuss money matters with an expert, send them to us.


Your goals and dreams change. Financial products do not. Clients work with us because we don’t sell products – we create customized plans based on each client’s unique goals, and we continuously reevaluate client plans to ensure they are aligned with changing needs. Our clients rely on us to protect their futures, and we take their trust to heart.


Tim Scannell, CPA, CFP TM provides Personal and Business Tax Planning, Estate Planning, Investment Management, and Generational Wealth management to his clients. “We deliver proactive, objective advice, plans and solutions enabling our clients to reach their unique family goals “.


Keith Wolak, CPA is a partner at Hoeppner Wagner & Evans. Keith is a Board Certified Indiana Trust and Estate Lawyer, as certified by Trust and Estate Specialty Board. Hoeppner Wagner & Evans LLP is a law firm with offices in Merrillville and Valparaiso. Visit our website for more information. DISCLAIMER: This publication is not intended to be legal

Scannell Wealth Management Group is registered with HighTower Securities, LLC, member FINRA, MSRB and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. Scannell Wealth Management Group and HighTower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed are solely those of Scannell Wealth Management Group, and do not represent those of HighTower Advisors, LLC, or any of its affiliates.