Every investor hopes for a strong return on investment from their stock portfolio, but the truth is that dividends paid out from corporate stocks are not created equal. There are two types of ordinary dividends: qualified and nonqualified.
The most significant difference between the two is that nonqualified dividends are taxed at ordinary income rates, while qualified dividends receive more favorable tax treatment by being taxed at capital gains rates. Ordinary dividends are the most common type of distribution from a corporation or a mutual fund - as they are paid out of earnings and profits. Examples of ordinary dividends that do not qualify for preferential tax treatment include:. Other dividends paid out by U.
In order to meet Internal Revenue Service standards, however, the requirements listed below must be met:. The difference can be substantial. Depending on a few factors, many nonqualified dividends are taxed at your marginal tax rate, which, based on your earnings, could be as much as A qualified dividend is a dividend that meets a series of criteria that result in it being taxed at the lower long-term capital gains tax rate, or for some investors, not taxed at all.
Needless to say, the potential tax-saving implications can be enormous. All things being equal, a qualified dividend may result in significantly more money remaining in your pocket than a similar nonqualified dividend.
Keep reading to learn more about this critically important topic every dividend investor should understand. For a dividend to be considered qualified, it must meet certain requirements. This includes some criteria the company itself must meet, but also minimum holding requirements that you, the investor, must meet for a dividend to be considered qualified:. It was paid either by a U. It was an ordinary dividend, not capital gains distributions, dividends from tax-exempt organizations, and payments in lieu of dividends.
Ordinary dividends are shown in box 1a of the Form DIV tax document each company sends out. You've held the underlying stock for more than 60 days during the day period beginning 60 days before the ex-dividend date.
In summary, a qualified dividend is always a regular dividend, but a regular dividend isn't always a qualified dividend. Why does this matter? Past performance is no guarantee of future results. All investments are subject to the risk of loss.
Prospective investors should consult with a tax or legal advisor before making any investment decision. Please refer to the Disclosure page on our website for important information about investments and risks.
Dividends Wealth manager. With apologies to the Founding Fathers, we hold this truth to be self-evident: Not all dividends are created equal. Qualified vs. Source: Parametric But what about the nonqualified dividends paid on the shares that were sold that will be taxed at ordinary income rates? Potential Parametric solution. Learn more. Read more. Equities Tax management Wealth manager. However, A Corporation also announces it reports only half of dividend payments as qualified dividends.
Will Gish slipped into itinerancy and writing in His work can be found on various websites. He is the primary entertainment writer for "College Gentleman" magazine and contributes content to various other music and film websites. Share It. References IRS. Accessed Aug.
0コメント