Taxes on Dividends: Answers to 4 Key Question
In the U.S., though, dividends can have favorable tax treatment for many small investors, making them tax efficient in regular brokerage accounts.
It is also possible for dividend-paying stocks to be held in tax-advantaged accounts delaying or reducing federal income tax on dividends.
Why do Investors Love Dividends So Much?
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?
The difference in the tax rate can be dramatic depending on your income. Families in the highest income tax bracket pay a 37% tax rate on regular income and only a 20% tax rate on dividends.
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.
What About Tax-Advantaged Accounts?
More people own a retirement account than a taxable brokerage account. Owning a retirement account is an advantage and a legitimate way to defer or avoid taxes on dividends.
Final Thoughts in Taxes on Dividend
Taxes on dividends can quickly be a complicated subject. The reason being is that there are variations of regular cash dividends.
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