Net investment income encompasses income on the assets which are not associated with active work. These are interest, dividends, capital gains, rental income, royalties and passive business income. It does not cover wages, self-employment earnings or retirement accounts distributions. The net investment income is examined by the IRS to see whether an individual is liable to the Net Investment Income Tax (NIIT), which is 3.8 percent or not. Knowledge of the sources of income that are counted can assist the taxpayers to plan their investment plans, reduce the amount of income that is subject to taxes and avoid any surprising tax bills. It is important to record the income earned on investment during the year in order to have the precise reporting and sound tax planning..