5 ms·

Aren’t they taxed differently, though? To my knowledge, dividends are taxed as ordinary income, whereas sales following a stock buyback may be taxed as capital

Aren’t they taxed differently, though? To my knowledge, dividends are taxed as ordinary income, whereas sales following a stock buyback may be taxed as capital gains (if they were held long enough before that point).

refurb 2y ago
If you're talking about the US, then no, dividends are given special tax treatment at a reduced rate if they are "qualified dividends". If they aren't, then yes, they are taxed as regular income.
teraflop 2y ago
"Qualified" dividends from long-term-held stocks are taxed in the same way as long-term capital gains.
- triceratops 2y ago
  You only have to hold a stock for 60 days to get qualified dividends. For long term gains it's a year.
triceratops 2y ago
Rich people borrow against appreciated assets. They don't sell and incur capital gains tax. That's why company leadership loves buybacks. Ordinary people have to sell assets to take advantage of appreciation. So unless they can time sales to optimize taxes - really only an option for retirees - they might as well get regular dividends.
- lordfrito 2y ago
  > Ordinary people have to sell assets to take advantage of appreciation Not entirely true.. Ordinary people can take advantage of appreciation of their home value via a standard home equity loan.
  - triceratops 2y ago
    No one's talking about houses here. I thought that was obvious. Also rich people get way, way lower interest rates borrowing against their assets than us poors do on HELOCs.
    - lordfrito 2y ago
      > Ordinary people have to sell assets to take advantage of appreciation > No one's talking about houses here. I thought that was obvious. For most ordinary Americans, the largest asset they will ever own is their house. Owning that asset is the essence of the old American Dream. So it seems like your original comment was primarily about housing assets. Anyone can get a home equity loan to access the appreciation the house might have. They don't pay taxes on the loan, and many people use the money on improvements that further increase at value of the asset. That combined with further asset appreciation and the loan pays for itself when the house is later sold. Ordinary people can and do do this. The rich just do it at a much larger scale.
      - triceratops 2y ago
        My original comment was about stock buybacks and how they boost stock prices. I repeat, no one was talking about houses. I thought it was obvious "assets" meant "stock" for the purposes of this comment thread. But since this is HN there's always at least one pedant. Finally primary homes don't have any capital gains tax on sale (or at least not up to a pretty high limit). So this whole discussion is irrelevant. Ordinary people can always sell their "biggest asset" without paying much in tax.
bombcar 2y ago
The real problem with dividends is they're taxed at the corporate level (corporate income tax) and then taxed when distributed to the shareholders (the shareholders pay income tax on the dividend). Eliminating the double taxation of dividends would likely solve most of the buyback problems.
- MereInterest 2y ago
  That sounds like a non sequitur. The same would be true of money spent on stock buybacks.
  - bombcar 2y ago
    Even if it isn’t a business expense (it may be) the shareholder doesn’t have to sell his shares and so incurs no tax liability- that year.
positr0n 2y ago
As a shareholder, dividends are income. Cash going in to your account that is taxed immediately. A stock buyback of 1000 shares means that your one share now represents 1/999,000th of the company, not 1/1,000,000th. Thus the share is worth more. It isn't income until you sell the share and pay taxes on the gains. This flexibility is useful and can result in tax savings depending on the situation.

refurb 2y ago

If you're talking about the US, then no, dividends are given special tax treatment at a reduced rate if they are "qualified dividends". If they aren't, then yes, they are taxed as regular income.

teraflop 2y ago

"Qualified" dividends from long-term-held stocks are taxed in the same way as long-term capital gains.

triceratops 2y ago
You only have to hold a stock for 60 days to get qualified dividends. For long term gains it's a year.

triceratops 2y ago

Rich people borrow against appreciated assets. They don't sell and incur capital gains tax. That's why company leadership loves buybacks. Ordinary people have to sell assets to take advantage of appreciation. So unless they can time sales to optimize taxes - really only an option for retirees - they might as well get regular dividends.

lordfrito 2y ago
> Ordinary people have to sell assets to take advantage of appreciation Not entirely true.. Ordinary people can take advantage of appreciation of their home value via a standard home equity loan.
- triceratops 2y ago
  No one's talking about houses here. I thought that was obvious. Also rich people get way, way lower interest rates borrowing against their assets than us poors do on HELOCs.
  - lordfrito 2y ago
    > Ordinary people have to sell assets to take advantage of appreciation > No one's talking about houses here. I thought that was obvious. For most ordinary Americans, the largest asset they will ever own is their house. Owning that asset is the essence of the old American Dream. So it seems like your original comment was primarily about housing assets. Anyone can get a home equity loan to access the appreciation the house might have. They don't pay taxes on the loan, and many people use the money on improvements that further increase at value of the asset. That combined with further asset appreciation and the loan pays for itself when the house is later sold. Ordinary people can and do do this. The rich just do it at a much larger scale.
    - triceratops 2y ago
      My original comment was about stock buybacks and how they boost stock prices. I repeat, no one was talking about houses. I thought it was obvious "assets" meant "stock" for the purposes of this comment thread. But since this is HN there's always at least one pedant. Finally primary homes don't have any capital gains tax on sale (or at least not up to a pretty high limit). So this whole discussion is irrelevant. Ordinary people can always sell their "biggest asset" without paying much in tax.

bombcar 2y ago

The real problem with dividends is they're taxed at the corporate level (corporate income tax) and then taxed when distributed to the shareholders (the shareholders pay income tax on the dividend). Eliminating the double taxation of dividends would likely solve most of the buyback problems.

MereInterest 2y ago
That sounds like a non sequitur. The same would be true of money spent on stock buybacks.
- bombcar 2y ago
  Even if it isn’t a business expense (it may be) the shareholder doesn’t have to sell his shares and so incurs no tax liability- that year.

positr0n 2y ago

As a shareholder, dividends are income. Cash going in to your account that is taxed immediately. A stock buyback of 1000 shares means that your one share now represents 1/999,000th of the company, not 1/1,000,000th. Thus the share is worth more. It isn't income until you sell the share and pay taxes on the gains. This flexibility is useful and can result in tax savings depending on the situation.