Why the Tax Impact on Dividend Income Is Important - 2
By Saghir Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
How does the qualified dividend tax treatment work?
For example, Jake has $35,000in 2019taxable income, excluding qualified dividends of $10,000 in qualified dividends pushes his total taxable income above $39,375,the threshold of the 0% long-term capital gain rate for a single filer. As a result, $4,375 of qualified dividends would be tax free, while the remaining $5,625[$45,000(his total income)-$39,375] would be taxed at 15%.
Is there a required holding period?
To qualify for the special tax treatment, shareholder must satisfy a certain holding period based on the type of stock held. For common stock, shareholder must own the stock for more than 60-days period containing the ex-dividend date. For preferred stock, the owner must hold the shares for more than a 90-days period including the ex-dividend date. Active traders should monitor their holding periods carefully to benefit from the qualified-dividend tax treatment.
Capital losses and offsetting qualified dividends
Although dividends and long term capital gains are taxed as the same rates, this does not mean capital losses can be used to offset dividends. However, if you have a net capital loss after offsetting all capital gains, up to $3,000 per year of capital loss may offset regular taxable income, which may include dividends.
Get the right advice
It’s important to understand how dividends are taxed –this is only a brief summary. For more detailed information, contact your tax advisor. Keep in mind taxes certainly effect investment returns. The effect of taxes should be only one of many factors you effects of tax should be only one of many factors you consider when making investment decisions.
There are tax advantages to owing a qualified-dividend paying stock-but that alone doesn’t make the stock appropriate for your portfolio. Before you make an investment, we will work with you to consider a variety of additional factors, such as your long term goals, time horizon Risk tolerance.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
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