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Dividends at taxed at income tax rates

by olde_fortran 7y ago

sureshv 7y ago
They are taxed as capital gains for recipients. Edit: *qualified dividends
- nickles 7y ago
  > They are taxed as capital gains for recipients. No, ordinary dividends are taxed as income.
_delirium 7y ago
True for ordinary dividends, but almost all stock dividends meet the criteria to be treated as qualified dividends, taxed at capital gain rates. For example, in Vanguard's S&P 500 index fund, about 98% of dividends are qualified [1]. Of commonly traded classes of stocks, only real-estate funds mostly pay out ordinary dividends. [1] https://advisors.vanguard.com/VGApp/iip/advisor/csa/investments/taxcenter/yeartodate https://advisors.vanguard.com/VGApp/iip/advisor/csa/investme...
- jjeaff 7y ago
  But you are forgetting the fact that the corporation will have to pay corporate income tax on that money before they can use it to pay your dividend.
  - wahern 7y ago
    That's true, regardless. They paid tax earning that $100M. What they do after is irrelevant, as neither dividends nor buybacks are tax deductible.
    - jjeaff 7y ago
      No, they didn't necessarily pay tax earning that 100m. See double irish sandwich and other modern tax avoidance strategies allowing companies like apple to hold infinite amounts of cash in overseas accounts tax free.
winter_blue 7y ago
In the U.S., if you've held the stock for at least one year, its dividends are taxed at a very favorable long-term capital gains rate. Stock held for less than a year is however taxed like regular income.
- sokoloff 7y ago
  The required holding period for qualified dividends in the US is typically 60 days, not 1 year. (It's 90 days for preferred shares.)
- jjeaff 7y ago
  It's not that favorable if all the corporate cash is stored overseas in low tax holding countries. The corporation will have to repatriate the money and pay corporate income tax on it before they give you your dividends. Alternatively, they could just grow that hoard of cash and let your stock appreciate after which you can sell a few shares and get capital gains rates on capital that didn't have to be double taxed.

Dividends at taxed at income tax rates

sureshv 7y ago

They are taxed as capital gains for recipients. Edit: *qualified dividends

nickles 7y ago
> They are taxed as capital gains for recipients. No, ordinary dividends are taxed as income.

_delirium 7y ago

True for ordinary dividends, but almost all stock dividends meet the criteria to be treated as qualified dividends, taxed at capital gain rates. For example, in Vanguard's S&P 500 index fund, about 98% of dividends are qualified [1]. Of commonly traded classes of stocks, only real-estate funds mostly pay out ordinary dividends. [1] https://advisors.vanguard.com/VGApp/iip/advisor/csa/investments/taxcenter/yeartodate https://advisors.vanguard.com/VGApp/iip/advisor/csa/investme...

jjeaff 7y ago
But you are forgetting the fact that the corporation will have to pay corporate income tax on that money before they can use it to pay your dividend.
- wahern 7y ago
  That's true, regardless. They paid tax earning that $100M. What they do after is irrelevant, as neither dividends nor buybacks are tax deductible.
  - jjeaff 7y ago
    No, they didn't necessarily pay tax earning that 100m. See double irish sandwich and other modern tax avoidance strategies allowing companies like apple to hold infinite amounts of cash in overseas accounts tax free.

winter_blue 7y ago

In the U.S., if you've held the stock for at least one year, its dividends are taxed at a very favorable long-term capital gains rate. Stock held for less than a year is however taxed like regular income.

sokoloff 7y ago
The required holding period for qualified dividends in the US is typically 60 days, not 1 year. (It's 90 days for preferred shares.)
jjeaff 7y ago
It's not that favorable if all the corporate cash is stored overseas in low tax holding countries. The corporation will have to repatriate the money and pay corporate income tax on it before they give you your dividends. Alternatively, they could just grow that hoard of cash and let your stock appreciate after which you can sell a few shares and get capital gains rates on capital that didn't have to be double taxed.