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Ordinary Dividends vs. Qualified Dividends: The Background Before 2003, all dividends were ordinary dividends and recipients paid taxes on them at their usual individual marginal rate.
The rates on qualified dividends range from 0 to 23.8%. The category of qualified dividend (as opposed to an ordinary dividend) was created in the Jobs and Growth Tax Relief Reconciliation Act of 2003 – previously, there was no distinction and all dividends were either untaxed or taxed together at the same rate. [1] To qualify for the ...
State Taxes on Dividends. Not all states tax ordinary income, and not all tax long-term capital gains either. But if you live in a state that does, you should prepare to pay the appropriate taxes ...
Qualified dividends: These are dividends that are taxed at the capital gains tax rate (which is lower than the standard income tax rate). For a dividend to be considered a qualified payout, it ...
Another case where income is not taxed as ordinary income is the case of qualified dividends. The general rule taxes dividends as ordinary income. A change allowing use of the same tax rates as is used for long term capital gains rates for qualified dividends was made with the Jobs and Growth Tax Relief Reconciliation Act of 2003. [1]
Most dividends paid by a corporation are ordinary dividends and do not conform to the criteria for qualified dividends. This means they are taxed at your individual marginal income tax rate.
Other examples of income listed in section 61 include interest and dividends, rent, royalty payments, alimony payments; life insurance, pensions, and inheritances. Eligible sources of gross income may be located in section 861.
Being able to discern and think intelligently about ordinary dividends versus qualified dividends is something every investor can learn fairly quickly. One way to remember the major distinction ...