How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Mark Anderson Your Own Question
Mark Anderson
Mark Anderson, Tax Attorney
Category: Tax
Satisfied Customers: 541
Experience:  Tax attorney and accountant
Type Your Tax Question Here...
Mark Anderson is online now
A new question is answered every 9 seconds


Customer Question

Submitted: 1 year ago.
Category: Tax
Expert:  Mark Anderson replied 1 year ago.
It depends what tax bracket you are in.
Expert:  Mark Anderson replied 1 year ago.
It also depends upon whether or not they are qualified or unqualified: amount of tax you'll pay on that dividend income varies depending on the dividend tax rate associated with your overall income and whether or not dividends are qualified or unqualified.If you're a long-term investor, most dividend income will be qualified as long as the dividend payment is paid by a U.S. corporation or a qualified foreign corporation, and dividends are associated with an investment that has been held for longer than the minimum period of time required.Types of dividend income that can't be considered qualified can be viewed here, but generally speaking, as long as you've owned a stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date, it will fall into the qualified dividend camp.In the following table, dividend tax rates for qualified dividends paid in 2015 are broken out by ordinary tax rates for each income range in the column to the far right. You'll notice that you won't have to pay any tax on your dividend income if taxable ordinary income puts you in the lowest two tax brackets. For example, if you're married filing jointly, your dividend income will not be taxed if your ordinary income is less than $74,900.You will be on the hook to pay a tax, however, if ordinary income puts you in an income tax bracket that is above those two lowest levels. People in the 25% to 35% tax bracket will have to hand over 15% of their dividend income to the IRS, while those in the highest 39.6% tax bracket will need to pay 20%. This next table shows how inflation adjustments will impact tax rates on dividends paid in 2016. Retirement plan dividend tax ratesIf you own dividend-paying investments in your retirement accounts, you should know a couple more things about dividend tax rates.First, if you invest in dividend-paying companies in a traditional IRA or a retirement plan, such as a 401(k) plan, dividends aren't taxed at the time they're issued to you. Instead, they are taxed as ordinary income when you begin taking distributions from that IRA or plan. As a result, the tax you pay on dividends earned could end up being greater in these accounts than what would have been paid if they were owned in a taxable account (see the table above).Second, if you own dividend-paying stocks in a Roth IRA, the dividend payments are not taxed at any point, because Roth IRAs are funded with post-tax dollars; as a result, distributions are generally tax-free if you follow the rules regarding Roth IRA distributions. For that reason, Roth IRAs can be an ideal way to own dividend-paying stocks to benefit from compounding interest on dividend income.And another thingFor most dividend investors, paying taxes is a cost of doing business, and that means dividend taxes shouldn't keep you from investing in dividend-paying companies. It also means investors may benefit by focusing less on the tax implications of a dividend paying investment and more on the long-term potential health of the investment being considered. For example, a high dividend-yielding investment is often high for a reason, and that can mean high dividend-paying companies carry greater risk.Regardless, planning ahead to make sure you have enough money available at tax time to cover the IRS bill associated with your dividend income is critical, because it may help you avoid the risk of being forced to sell the underlying investment to cover the tax, and that makes knowing your dividend tax rate important to your long-term investing success. The $15,978 Social Security bonus most retirees completely overlookIf you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. In fact, one MarketWatch reporter argues that if more Americans knew about this, the government would have to shell out an extra $10 billion annually. For example: one easy, 17-minute trick could pay you as much as $15,978 more... each year! Once you learn how to take advantage of all these loopholes, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how you can take advantage of these strategies.