Sullivan & Company - Certified Public Accountants 4709 Montgomery Lane #201 - Bethesda, MD, 20814 Phone: 301-657-8080

       

 

 


 

 

 

Financial Services by Sullivan & Company

Paul Sullivan, CPA

Financial services are now offered at Sullivan & Co., CPAs.  The story WHY:

 

You may wonder why your accounting firm wants you to invest with them. Years ago, CPAs were not allowed to venture into the investment world, but it always bothered us to see how poorly our clients were treated at their broker. It is not that the broker was not nice or attentive; it was the quality of the investments and, oftentimes, the lack of understanding for how the investments were going to affect the client in the future.

 

The amount of commissions and fees were oftentimes much larger than the client realized. Principles taught in universities were ignored by greedy advisors. Some forward thinking CPAs worked hard to get the accounting industry to see that we could, at the least, counsel our clients so that their investing experience was successful.

 

Our function is to work with you in all areas of your financial life. We prepare your tax returns and financial statements, of course, but there's a lot more decisions you make that we should be involved in. These include: succession planning for business owners such as HOW TO:

1) Sell your business

2) Retire comfortably

3) Handle your finances now that you are divorced or widowed

4) Provide for loved ones if you die

5) Pay for the education of your children

6) Determine if a trust is right for you

7) Minimize estate taxes

 

Worse than hearing that the IRS is going to audit is the call from a client who has plunged into an investment, whether stocks, bonds or another home without consulting us first.

 

Sometimes these decisions have unfortunate results and are difficult or impossible to undo. So, in response to this need, your CPA firm has well trained accountants and financial services professionals to help you navigate the financial world..

For a free review of your investments, give me a call at 301 657-8080 X 102.

 


 

 

Paul Sullivan, CPA

Sullivan & Company

 

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This Month's Feature Articles

 

- 2016 Tax Provisions for Individuals: A Review

- 2016 Recap: Tax Provisions for Businesses

- Employee or Independent Contractor--Which is it?

- Understanding the Net Investment Income Tax

- Choosing a Retirement Destination
 

Tax Tips

 

- Reminder: College Tax Credits for 2016

- Take Retirement Plan Distributions by December 31

- Plan now to take Advantage of Health FSAs in 2017

- Retirement Contributions Limits Announced for 2017

- Seasonal Workers and the Health Care Law



 

 

 

 

 

 

Understanding The Net Investment Income Tax


 

One of the most significant tax changes affecting higher income taxpayers was the Net Investment Income Tax that went into effect on January 1, 2013.

 

While it tends to affect wealthier individuals most often, in certain circumstances, it can also affect moderate income taxpayers whose income increases significantly in a given tax year.

 

Here's what you need to know:

WHAT IS THE NET INVESTMENT INCOME TAX?

The Net Investment Income Tax (NIIT) is a 3.8 percent tax on certain net investment income of individuals, estates, and trusts with income above statutory threshold amounts, referred to as modified adjusted gross income or MAGI.

WHAT IS INCLUDED IN NET INVESTMENT INCOME?

In general, investment income includes, but is not limited to interest, dividends, capital gains, rental and royalty income, nonqualified annuities, income from businesses involved in trading of financial instruments or commodities, and passive business activities such as rental income or income derived from royalties.
 



WHAT IS NOT INCLUDED IN NET INVESTMENT INCOME?

Wages, unemployment compensation; operating income from a nonpassive business, Social Security Benefits, alimony, tax-exempt interest, self-employment income, Alaska Permanent Fund Dividends, and distributions from certain Qualified Plans are not included in net investment income.

INDIVIDUALS

Individuals with MAGI of $250,000 (married filing jointly) or $200,000 for single filers are taxed at a flat rate of 3.8 percent on investment income such as dividends, taxable interest, rents, royalties, certain income from trading commodities, taxable income from investment annuities, REITs and master limited partnerships, and long and short-term capital gains.

The NIIT is a flat rate tax that is paid in addition to other taxes owed, and threshold amounts are not indexed for inflation.

Non-resident aliens are not subject to the NIIT; however, if a non-resident alien is married to a US citizen and is planning to file as a resident alien for the purposes of filing married jointly, there are special rules. Please call if you have any questions.

Investment income is generally not subject to withholding, so NIIT is going to affect your tax liability for the 2016 tax year. In addition, even lower income taxpayers not meeting the threshold amounts may be subject to NIIT if they receive a windfall such as a one-time sale of assets that bumps their MAGI up high enough to be subject to the NIIT.
 

DID YOU KNOW that Sullivan & Company manages Pension Funds, Retirement Plans & Taxable Accounts through Archer Investment Corporation & Fidelity Investments for our clients.
Fidelity is the custodian for more retirement plans than any other custodian in the United States.


Let Sullivan & Company Analyze Your Asset Allocation & Risk Tolerance for FREE!
Call 301-657-8080 today!


STRATEGIES TO MINIMIZE NIIT

Tax planning is crucial--for this year as well as next. If you are anticipating a windfall this tax year or next, there are a number of strategies that you could use to minimize your MAGI and reduce or possibly eliminate tax liability when you file your tax return. These include but are not limited to:

 - Rental Real Estate (depreciation deductions)
 - Installment sales (including figuring out the best timing for sale)
 - Roth conversions
 - Charitable donations
 - Tax-deferred annuities
 - Municipal bonds


SALE OF A HOME

The Net Investment Income Tax does not apply to any amount of gain that is excluded from gross income for regular income tax purposes ($250,000 for single filers and $500,000 for a married couple) on the sale of a principal residence from gross income for regular income tax purposes. In other words, only the taxable part of any gain on the sale of a home has the potential to be subject to NIIT, providing the taxpayer is over the MAGI threshold amount.

ESTATES AND TRUSTS AFFECTED

Estates and Trusts are subject to NIIT if they have undistributed net investment income and also have adjusted gross income over the dollar amount at which the highest tax bracket for an estate or trust begins for such taxable year. In 2016, this threshold amount is $12,400.

Special rules apply for certain unique types of trusts such a Charitable Remainder Trusts and Electing Small Business Trusts, and some trusts, including "Grantor Trusts" and Real Estate Investment Trusts (REIT) are not subject to the NIIT.

Please note, however, that non-qualified dividends generated by investments in a REIT that are taxed at ordinary tax rates may be subject to the Net Investment Income Tax.

Questions? If you need guidance on the NIIT and estates and trusts, help is just a phone call away.

REPORTING AND PAYING THE NET INVESTMENT INCOME TAX

Individual taxpayers should report (and pay) the tax on Form 1040. Estates and Trusts report (and pay) the tax on Form 1041.

Individuals, estates, and trusts that expect to be pay estimated taxes in 2016 or thereafter should adjust their income tax withholding or estimated payments to account for the tax increase in order to avoid underpayment penalties. For employed individuals, the NIIT is not withheld from wages; however, you may request that additional income tax be withheld.

Wondering how the Net Investment Income Tax affects you? Give the office a call today and find out.


QUESTIONS?

If you have any questions about the NIIT, don't hesitate to call the office if you would like more information about the NIIT as well as any tax planning strategies this year.  Help is just a phone call away at 301-657-8080.
 


 

    Financial Services at Sullivan & Co. CPAs

Paul Sullivan leads our Financial Services Division and is here to help you navigate your financial future. As an Investment Advisor Representative, he is able to provide an independent opinion on the investments you already own or are considering buying.

 

We can structure a portfolio based on your risk tolerance or we can help you decide how to invest in your company 401(k) plan. We work with each client to identify their concerns and to provide solutions according to their situation.

Paul is also experienced in company retirement plans. If you own a business that does not have a plan; we can discuss your options and set up a plan that fits your company.

 

If your business already has a plan; we offer a free evaluation of the plan to ensure that it is up to date and working well for you and your employees.

Our goal is to provide personal, unbiased and independent advice to help you make well-informed decisions about your financial life and investments.

Contact Paul Sullivan or Jane Huserova to set up a free initial consultation (301) 657-8080.

And as always if you have any questions about accounting or investments and how they effect you or your business, please give us a call. We can help guide you in the right direction.

 


 

Remember you can call our offices if you have any questions about these or any other accounting, tax, financial planning or insurance related issues, at 301-657-8080. 

 

Regards, Paul Sullivan, CPA

President, Sullivan & Company

 

 

 

 

Sullivan & Company, CPAs | 4709 Montgomery Lane | Bethesda, MD 20814 www.eSullivan.net | email: pSullivan@eSullivan.net | Connect With Me on Linkedin

Direct: 240-316-3531 | Main no.: 301-657-8080 Ext 102 | Fax: 301-657-9055