Some types of investment income, like long-term capital gains and qualified dividends, enjoy favorable tax rates.

But many types of investment income are subject to unfavorable tax rates when they’re reported by high-income clients. Not only can basic tax rates be higher (up to 39.6% on ordinary income, and 20% instead of 15% on dividends and long-term gains), net investment income can also be subject to a 3.8% surtax designed to help finance Medicare. Without counting any state taxes, high-income clients could owe 43.4% on interest income as well as 23.8% on dividends and long-term gains.

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