It’s ridiculously confusing. There’s an additional Medicare tax of 0.9% that apples to earned income over certain levels, and also a 3.8% tax on investment income over certain levels. The latter, an additional tax enacted under the Affordable Care Act, was put in place to help fund the ACA and is what known as the NIIT.
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You don’t have to be a real estate professional to get that business deduction, there are much looser parameters, but sadly you do have to pay the 3.8% net investment income tax on cap gains if your income exceeds a certain amount, unless you’re a real estate professional. You married wisely!
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While I’m thinking of it - one of the big pain points for small RE investors is that one of the criteria to be eligible for QBID is that you have to issue 1099-NECs and 1099-MISCs to anyone you did more than $600 of business with - plumbers, electricians, lawn guys, etc - that’s not a corporation.
This means getting W-9s and filing stuff with the govt (we use an on line service to file the forms).
A lot of these guys do not want to give you a W-9, and we’ve had to fire people because of it.
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@busdriver11 my sale got reported on form 4797 Sale of Business Assets, and there was a corresponding deduction on form 8960 on line 5. So the capital gains for me was not considered in calculating the NIIT.
@sherpa you are right I was talking about the 0.9% surtax, not the 3.8% one.
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@notrichenough I suspect you got the corresponding deduction on form 8960 because of your wife’s status as a real estate professional. When I check the block that I’m a real estate professional, my taxes go down over 14K, assuming because of not having to pay that investment tax. Unfortunately, now I’m going to have to go back and uncheck that box before I file!
IDK if I would consider it an unpleasant financial exercise. If there is any substantial amount of money involved, it is worth selecting the right investments based on historical info, and then tracking in some way. I identified the 4 best investment, and then fine tuned when I saw that two of these did not decline as much in downturn while having strong returns in upturn market – so I went from 25-25-25-25 to 10-10-40-40 and this helped on overall returns. Of course 2022 was a downturn year.
Our other financial investments are managed by FA. I also watch our local housing market, and we plan to do some home improvements.
Yikes I’m in trouble. Didn’t notice my (very part time) employer wasn’t taking out federal taxes for the year (other than @250 for some reason). Also didn’t know I wasn’t paying enough taxes on my pension.
Here’s a stupid question if anyone happens to know the answer. Do losses in investment accounts help offset taxes not paid on income?
Are you a 1099 employee? Sounds like they have you classified that way. (But the $250 seems pretty random.)
I don’t know enough to answer your question about the investment losses - sorry. I think I know the answer, but I’m not sure I do … so I’ll let our more knowledgeable folks respond to that.
if you have a net capital loss on investments, you can use up to $3k of loss to offset income. Any capital losses above that amount get carried forward to the next tax year(s).
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If the investment account is a tax-advantaged account like an IRA, no.
If the investment account is not a tax -advantaged account, and you actually sold the investment at a loss, you can offset $3000 in income with $3000 in losses. Losses greater than $3000 are deferred until future years, when you can use them then.
If the loss is a paper loss (i.e., you didn’t actually sell anything at a loss), no.
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If you’re not at the age when you have to take mandatory withdrawals, you can contribute to a regular IRA and defer the contribution amount from your income. At least that’s as far as I recall. My Vanguard advisor set up a Roth because I am well into mandatory withdrawals, but that’s not deferrable.
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It’s a “real” loss - tax loss harvesting.
As a retiree I have some things to learn. I sent too much to state, but not enough to feds, because I THOUGHT they were taking out what they should. I just assumed “their” calculation would be close. I will be better this year!
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@1214mom no advice but we are in the same boat. Our first year of retirement and not enough was withheld. Changed that but will be paying a hefty bill in April 
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Copying from a website because I was unsure of the limits.
Your 2022 IRA contributions may also be tax-deductible. If you – and your spouse, if married – don’t have a retirement plan at work such as a 401(k), you can deduct the full contribution to your traditional IRA on your tax return no matter how much you earn. You have until the federal tax filing deadline to make your IRA contribution for the previous year.
Even if you have a retirement plan on the job, you may still be able to deduct some or all of your contribution depending on your income. For 2022 IRA contributions, the amount of income you can have and still get a full or partial deduction rises slightly from past years. Singles with modified adjusted gross income of $68,000 or less and joint filers with income of up to $109,000 can deduct their full contribution for the 2022 tax year. Deductions thereafter decrease and phase out completely once income reaches $78,000 for singles and $129,000 for joint filers. For 2022, singles with modified adjusted gross income of up to $68,000 and married joint filers with income of $109,000 or less were able to deduct their full contributions.
Be aware that you generally must have earned income to contribute to an IRA. But if you’re married and one of you doesn’t work, the employed spouse can make a contribution into a so-called spousal IRA for the other.
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Are you taking RMDs from your IRA or not yet that age?
If you are taking RMDs, you can have the RMD paid directly to the Feds to satisfy your Fed tax liability. Even if you have the amount paid as of the end of December, the payment is considered to have been paid throughout the year, thereby eliminating an underpayment penalty.
This only works if the amount of your RMD equals the amount of your Fed tax liability.
This workaround does not work for state taxes, at least not in CT.
"Although estimated tax payments are considered made when you send in the checks — and must be paid as you receive your income during the year — amounts withheld from IRA distributions are considered paid evenly throughout the year, even if made in a lump sum payment at year-end.
So, if your RMD is large enough to cover your entire tax bill, you can keep your cash safely ensconced in the IRA most of the year, avoid withholding on other sources of retirement income, skip quarterly estimated payments . . . and still avoid the underpayment penalty."
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I am not taking RMDs at this point. I will have to pay lots of $$$ in taxes. Fortunately my husband overpaid (He too is a new retiree), so I don’t think we as a couple will have any/many penalties. Fingers crossed that’s the case.
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We did our taxes yesterday. We underestimated the federal taxes by $6000 including the $120 penalty for doing so. BUT we got $2400 back from our state. Next year will be fine, as DH really isn’t working at all in 2023. And we had solar panels installed…so the tax credit should cover a good portion of our 2023 taxes.
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It has been awhile, but I thought you did not owe a penalty if you paid a minimum of 100% of what you owed the prior year – even if this tax year liability was significantly more. I was self-employed for years, and never knew what I would owe in advance, so made sure I always paid estimated taxes equal to the amount due the prior year. But someone else always did my taxes. Can anyone in-the-know confirm?
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Correct. In general, there is no underpayment penalty if the combination of withheld and estimated tax paid equals 100% of the prior year tax burden, or 90% of the current year.
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Not a tax professional but believe it’s the lesser of 90 percent of tax owed current year and 110 percent of prior year taxes (110 percent if AGI > 150k for married filing jointly) to avoid penalty
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