- Dividends represent the return of corporate earnings to shareholders. All dividends may be described as ordinary dividends. Qualified dividends are a subset of ordinary dividends that enjoy preferential tax treatment. Brokerages supply 1099-DIV forms to list the amount and type of dividends paid on your account for the year.
- Qualified dividends are associated with stocks that are owned for at least 61 days within the 120-day time frame around the ex-dividend date. This 120-day window starts 60 days prior to the stock's ex-dividend date. Investors buy stocks before they go ex-dividend to receive dividend income.
- Ordinary dividends are taxed as income within your applicable tax bracket. Qualified dividends, however, are treated as capital gains for tax purposes. Qualified dividends are taxed at either 0%, or 15%. Taxpayers within the 10% and 15% tax brackets do not pay taxes on qualified dividends.
- The distinction for qualified dividends cuts taxes for long-term investors. Moderate-income taxpayers may be encouraged to buy dividend-paying stocks for their preferential tax treatment.
- Tax law constantly evolves. Monitor current events to avoid basing decisions upon expired legislation.
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