Taxes on Dividends: Answers to 4 Key Question

It’s to see my dividends coming in.” Buy a stock that pays a dividend, and a company pays you passive income every quarter in the U.S. and semi-annually in most other countries. 

Why do Investors Love Dividends So Much?

Why do dividends matter to investors? There are several reasons investors like dividends. One of the most important is that dividends are a return of cash to an investor. A company can return some money to stock owners by buying back shares or paying a dividend.  

What is the Tax Rate on Dividends?

Dividend tax rates differ depending on whether the dividend is qualified or nonqualified, also known as ordinary. The difference in the tax rate can be dramatic depending on your income.  

Nonqualified Dividends

Qualified Dividends

Which One Is It?

The 1099-DIV will state whether the dividend is qualified or not. For your tax returns, all you need to do is to make the correct entry for qualified and nonqualified dividends to report your income properly

Can You Avoid Taxes on Dividends?

In general, the answer is no, but there are exceptions. Dividends are a type of income, so they are taxable. Reinvesting dividends in the same stock or mutual fund or ETF, for that matter, does not avoid taxes. You must still pay taxes on the dividends.

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