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CandleFocus Glossary Editor
Qualified Dividend 101
What is a qualified dividend? Simply put, a qualified dividend is an ordinary dividend that meets the criteria outlined in the Internal Revenue Service (IRS) code, to be taxed at capital gains tax rates.
Under code section 1(h), qualified dividends are regular dividends that are paid to shareholders from the taxable income of a corporation or a partnership. Qualified dividends are considered to be a long-term investment and are subject to capital gains tax rates, which are typically lower than the income tax rates for many taxpayers.
The maximum tax rate for qualified dividends is 20%, as of the 2022 and 2023 tax years. Ordinary dividends, on the other hand, are taxed at discretion of the IRS, which may be up to 37%. Therefore, taking advantage of qualified dividends can potentially save a taxpayer money in the long term.
To qualify as a qualified dividend, the dividend must meet several criteria set out by the IRS. First, they must be paid by a U.S. corporation or the qualifying foreign company. Any company other than the U.S. corporation, like those based in foreign markets, are considered non-qualified companies. Eligible stockholders must also have held the stock for more than 60 days during the 121-day period that begins 60 days prior to the ex-dividend date.
In addition to these requirements, the dividend must be an eligible investment as outlined by the IRS. Examples of these types of investments include: common stock, real estate investment trusts (REITs), and exchange-traded funds (ETFs).
In summary, for a dividend to qualify for the lower capital gains tax rate, it must meet certain criteria set out by the Internal Revenue Service. These include the dividend being categorized as a qualified dividend, the stockholder must have owned the stock for longer than 60 days and the dividend must be an eligible investment type. Taking advantage of the tax benefits of qualified dividends can potentially save taxpayers money in the long-term. Therefore, it may be beneficial to research and identify any dividend payments you may receive and whether they qualify for the lower tax rate.
What is a qualified dividend? Simply put, a qualified dividend is an ordinary dividend that meets the criteria outlined in the Internal Revenue Service (IRS) code, to be taxed at capital gains tax rates.
Under code section 1(h), qualified dividends are regular dividends that are paid to shareholders from the taxable income of a corporation or a partnership. Qualified dividends are considered to be a long-term investment and are subject to capital gains tax rates, which are typically lower than the income tax rates for many taxpayers.
The maximum tax rate for qualified dividends is 20%, as of the 2022 and 2023 tax years. Ordinary dividends, on the other hand, are taxed at discretion of the IRS, which may be up to 37%. Therefore, taking advantage of qualified dividends can potentially save a taxpayer money in the long term.
To qualify as a qualified dividend, the dividend must meet several criteria set out by the IRS. First, they must be paid by a U.S. corporation or the qualifying foreign company. Any company other than the U.S. corporation, like those based in foreign markets, are considered non-qualified companies. Eligible stockholders must also have held the stock for more than 60 days during the 121-day period that begins 60 days prior to the ex-dividend date.
In addition to these requirements, the dividend must be an eligible investment as outlined by the IRS. Examples of these types of investments include: common stock, real estate investment trusts (REITs), and exchange-traded funds (ETFs).
In summary, for a dividend to qualify for the lower capital gains tax rate, it must meet certain criteria set out by the Internal Revenue Service. These include the dividend being categorized as a qualified dividend, the stockholder must have owned the stock for longer than 60 days and the dividend must be an eligible investment type. Taking advantage of the tax benefits of qualified dividends can potentially save taxpayers money in the long-term. Therefore, it may be beneficial to research and identify any dividend payments you may receive and whether they qualify for the lower tax rate.