How Are Qualified Dividends Taxed in 2017?
Dividends are a common form of income for many investors. They can be a great way to generate passive income and build wealth over time. However, it is important to understand how dividends are taxed, as the tax treatment can vary depending on the type of dividends received. In this article, we will explore how qualified dividends are taxed in 2017 and address some frequently asked questions regarding this topic.
Qualified dividends are dividends that meet certain requirements set by the Internal Revenue Service (IRS). To be considered qualified, the dividends must be paid by a U.S. corporation or a qualified foreign corporation. Additionally, the investor must meet certain holding period requirements. For most stocks, the holding period is at least 61 days within the 121-day period that begins 60 days before the ex-dividend date.
Qualified dividends are subject to a lower tax rate than ordinary dividends. For most individuals, the tax rate on qualified dividends is 0%, 15%, or 20%, depending on their taxable income. The tax rates for qualified dividends are the same as the tax rates for long-term capital gains. This means that individuals in the 10% or 15% income tax brackets pay 0% tax on qualified dividends, those in the 25%, 28%, 33%, or 35% brackets pay 15%, and those in the highest tax bracket of 39.6% pay 20%.
Now let’s address some frequently asked questions about the taxation of qualified dividends in 2017:
1. What is the difference between qualified and non-qualified dividends?
Non-qualified dividends do not meet the IRS requirements for qualified dividends and are taxed at the individual’s ordinary income tax rate.
2. Are dividends from foreign stocks eligible for qualified dividend treatment?
Yes, dividends from qualified foreign corporations can be considered qualified dividends if they meet the necessary requirements.
3. Can dividends from real estate investment trusts (REITs) be considered qualified dividends?
No, dividends from REITs are generally not eligible for qualified dividend treatment and are taxed at the individual’s ordinary income tax rate.
4. Are dividends received in a tax-advantaged retirement account taxable?
No, dividends received within a tax-advantaged retirement account such as a 401(k) or IRA are not subject to immediate taxation.
5. What documentation is needed to prove that dividends are qualified?
The IRS does not require any specific documentation to prove that dividends are qualified. However, it is advisable to keep records of dividend payments and holding periods in case of an audit.
6. Are qualified dividends subject to the Net Investment Income Tax (NIIT)?
Yes, qualified dividends are subject to the NIIT if an individual’s modified adjusted gross income exceeds certain thresholds.
7. Can qualified dividends be offset by capital losses?
Yes, capital losses can be used to offset qualified dividends, reducing the tax liability.
8. Are dividends from mutual funds considered qualified dividends?
Dividends from mutual funds may be qualified or non-qualified, depending on the composition of the fund’s holdings. It is important to check the fund’s prospectus or consult with a tax advisor.
9. Can qualified dividends push individuals into a higher tax bracket?
Yes, qualified dividends are included in an individual’s taxable income and can potentially push them into a higher tax bracket.
10. How are qualified dividends reported on tax returns?
Qualified dividends are reported on Form 1099-DIV, which is issued by the investment institution or brokerage firm.
11. Are there any additional state taxes on qualified dividends?
Some states may tax qualified dividends differently or may not offer the same tax benefits as the federal government. It is important to check the specific state’s tax laws.
12. Are there any changes to the taxation of qualified dividends in 2021?
This article focuses on the tax treatment of qualified dividends in 2017. However, tax laws can change over time, and it is advisable to consult with a tax professional or review the latest IRS guidelines for the most up-to-date information.
In conclusion, qualified dividends are a tax-efficient way to generate income from investments. Understanding how they are taxed can help investors make informed decisions and optimize their tax strategies. By knowing the tax rates and requirements for qualified dividends, individuals can minimize their tax liability and maximize their overall investment returns.
