Thread by @BusinessFamous

Qualified Dividends

vs

Ordinary Dividends

Q: What's the difference?

A: 10-19% tax savings on your dividends!

[THREAD]

👇👇👇

What is a Qualified Dividend?

It's the same as an Ordinary Dividend except it's taxed at a lower federal rate

An Ordinary Dividend becomes a Qualified Dividend when you hold the stock for 60 days out of the 121 day period before the ex-dividend date

Here's the tax rates 👇

For example:

If a stock's ex-dividend date is Oct 1, you have to hold it for 60 days of the 121 days surrounding the ex-dividend date:

Aug 2

Oct 1 (ex-dividend date)

Nov 30

(Aug 2 to Nov 30 = 121 days)

Your tax rate also depends on how much income you make

From the chart in the last tweet, you can see that Qualified Divs are taxed 10-19% LESS than Ordinary Divs!

If you're filing as Single, with dividend income under ~$40k, Qualified Dividends are taxed at 0% (yes, zero %)

The IRS is rewarding long term investors for holding stocks for longer periods of time

Another important distinction is that REIT and MLP dividends typically DO NOT become Qualified Dividends, regardless of how long you've held them

IRS Pub P550, p. 19

irs.gov/pub/irs-pdf/p5…

The good news is that most brokerages keep track of this for you, so you don't have to figure all this out yourself.

There are numerous other details that may or may not factor into your dividend taxes, so make sure you consult with your tax professional!