2 Things You Should Know About Dividend Income And Taxes

It’s not necessarily true that dividend income is free money [View in browser]( [The Juice Logo] BROUGHT TO YOU BY: [Logo]( Proprietary Data Insights Top Dividend-Paying Stock Searches This Month Rank Ticker Name Searches #1 [NVDA]( Nvidia 916,339 #2 [AAPL]( Apple 430,056 #3 [MSFT]( Microsoft 281,171 #4 [META]( Meta Platforms 219,181 #5 [GIS]( General Mills 218,155 #ad [Navigating Market Volatility: The Alt Advantage]( Brought to you by [Behind the Markets]( [China's Sneak Attack to Destroy the U.S. Dollar]( [ Behind the Markets - China]( In just the past few months, China has convinced countries like Brazil, Argentina, and Iraq to stop using the dollar for trade. Instead, they are switching to China's currency, the yuan. I've prepared a special report that reveals how you could profit as China's yuan displaces the US dollar as the global reserve currency. It provides specific investments perfectly positioned to benefit from the dollar's downfall. This report is valued at $997 but I'd like to send it to you for FREE. [Go here to download your exclusive copy ]( 2 Things You Should Know About Dividend Income And Taxes We love dividend stocks. We’re just not blindly loyal to them. And that’s really the problem. There’s a hardcore group of investors who not only live and die by dividend stocks, particularly [dividend growth stocks](, themselves, but they push them hard on other people. To the extent that they think you must be an idiot if you invest in a stock that doesn’t pay a growing dividend. However, as [we noted the other day](: The Juice will never advocate a 100% dividend growth-focused approach. There’s too great of a chance you’ll pass on an NVDA simply because of a stagnant dividend that says absolutely nothing about the health of the company or its stock. If you decide on a dividend-only approach, that’s cool. It’s not the end of the world. But you should, at the very least, understand the real and potential downsides associated with it. There’s almost no foolproof investing strategy. Even putting all of your money in broad market ETFs, such as SPY and QQQ, isn’t optimal. Had you just put every last dime in Nvidia (NVDA) and Microsoft (MSFT) over the last five to ten years, you’d be better off. Except hindsight is 20/20. It’s easy to pick the winners when they have already won. Thus, diversification in approach and holdings. This said, we think dividend stocks can have a place in most portfolios. But, before making an investment, consider the potential tax consequences. #1 What Are Dividend Tax Rates? Dividend tax rates vary depending on your income tax bracket. The first thing you need to know are the two types of dividends: - Qualified dividends: You have held the stock for more than 60 days in the 121-day period that started 60 days prior to the ex-dividend date. A U.S. company or qualifying foreign entity pays the dividend. - Unqualified dividends: Dividends paid by [real estate investment trusts]( (REITs), master limited partnerships (MLPs), employee stock options and companies exempt from paying taxes. [Special, one-time dividends]( are also not qualified. Tax rates on qualified dividends are more favorable. As of the 2024 year, the rate is 0% on qualified dividends if your taxable income is under $47,025 for single filers and under $94,050 for married filing jointly taxpayers. So, yes, you can collect dividend income tax-free. If you earn more than $47,026 (single) or $94,051 (married filing jointly), you'll pay a 15% tax rate on qualified dividends. If your income exceeds $518,900 for a single person or $583,750 for a married couple, your dividend tax rate will be 20%. If this sounds familiar, it might be because the IRS taxes qualified dividends at the capital gains tax rate. As for un or non-qualified dividends, we sometimes refer to them as ordinary dividends. Ordinary because the IRS taxes them like ordinary income, determined by your taxable income and subsequent tax bracket. #2 How Do You Pay Dividend Taxes? It’s actually pretty straightforward. At the end of the year, along with your other tax forms, banks, brokerages and other institutions that paid you dividends during the year will send a 1099-DIV form. It includes the following information: - The payer of the dividends - The recipient of the dividends - The type and amount of dividends paid - Federal or state income taxes already withheld When you file taxes, the IRS asks about this form. Simply enter the information on your tax return and, from there, the IRS will work it into the equation to determine your overall tax due. If, for some reason, you didn’t receive a 1099-DIV, you still need to report your dividend income to the IRS. So, remember, the above-mentioned numbers are taxable income. If you lower your taxable income significantly through, for example, deductions you can potentially lower your dividend tax due, particularly if you’re near one of the thresholds. The income thresholds typically change each year in line with inflation. The Bottom Line: In some cases, dividends are tax-free. Essentially free money. However, if you make too much money, it’s critical to take into account how dividend income will impact your tax situation. While it might not make or break your tax season, taxes on dividends are important and a conversation the most hardscore dividend investors gloss over or completely ignore. The other big takeaway here: You pay ordinary income tax rates on dividends paid out by REITs. We love REITs here at The Juice, but this is definitely a potential downside. 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