The best (legal) way to avoid dividend taxesĪs a final thought, keep in mind that these dividend taxes only apply to dividends paid in a taxable brokerage account. And just so you're aware, your broker sends a copy of your 1099-DIV to the IRS as well, so they know exactly how much dividend income you should be reporting. Your dividends will be reported on lines 9a and 9b of form 1040, and if your total dividends received for the year exceeded $1,500, you'll have to fill out Schedule B as well. Line 1b will tell you how much of this amount came from dividends that met the definition of qualified. When you receive your 1099-DIV form in early 2019, your dividends will be listed on line 1a. Nobody likes paying taxes (at least not anyone I've met), but one piece of good news is that your brokerage does the record-keeping for you. So, they'll remain the same unless the law governing them changes. Investors will owe net investment income tax if they have any net investment income (interest, dividends, capital gains, etc.) and have modified AGI in excess of these thresholds:įinally, it's important to note that unlike the tax brackets, these thresholds are not indexed for inflation. On top of the tax rates discussed in the previous section and any applicable state taxes you might owe, high-income investors are also required to pay a 3.8% net investment income tax. Īnother tax high-income investors may have to pay As part of the tax overhaul, the seven brackets have been adjusted to 10%, 12%, 22%, 24%, 32%, 35%, and 37%, and you can determine yours using our guide to the 2018 tax brackets. If your dividends aren't qualified, they will be taxed at your marginal tax rate, according to the 2018 tax brackets. According to the Tax Cuts and Jobs Act, here are the AGI thresholds for the 2018 tax year. If your dividends meet the definition of "qualified dividends," they will be taxed at a rate of 0%, 15%, or 20%, depending on your adjusted gross income, or AGI. Roughly 77% of this amount was treated as ordinary income, 22% was considered a nontaxable return of capital, and about 1.5% was considered a capital gain distribution, which is always taxed as a long-term capital gain (same rates as qualified dividends). Most dividends paid by REITs are considered to be ordinary income, but some can be considered capital gains or returns of capital, depending on how the REIT made its money during the tax year.įor example, net-lease REIT Realty Income (NYSE: O) paid $2.527 per share in dividends during 2017. Real estate investment trusts, or REITs, are a good example of this. It's also important to mention that some dividends can be considered to be more than one type of payments. Dividends paid by a corporation on securities held in an employee stock ownership plan (ESOP).Dividends paid on deposits with banking institutions, such as credit unions.Dividends from tax-exempt organizations.These include but aren't necessarily limited to: For preferred stock dividends, you must have held the stock for a 90-day period during the 181-day window beginning 90 days before the ex-dividend date.Ĭertain types of dividends never count as qualified dividends.
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