Thread by @dividendology

One of the best kept secrets of the tax code?

Under the right circumstances-

A married couple in the US can earn up to $126,700 in dividends every year and pay zero in taxes.

Here's how: (thread 👇)

Generating $126,700 of federal tax-free money is almost equivalent to generating a before-tax salary of $165,000 (since you would pay approximately 25% in federal taxes)!

In other words, you would need to earn $165,000 from your day job to have the exact same net pay of $$126,700 with qualified dividends.

Remember, the tax code wasn’t designed for employees; it was meant for business owners & investors.

So, how does this actually work?

Qualified dividends get a preferential tax treatment.

According to the IRS, if your taxable income is less than $96,700 and you file jointly, you will pay $0 in tax.

The taxable income calculation is after the standard deduction gets applied.

The standard deduction is $30,000 for married individuals-

So here is how you can calculate the maximum amount you can generate in qualified dividends and pay $0 in taxes:

If you are filing as single, you can generate $63,350 of dividends and pay $0 in federal taxes.

That’s equivalent to almost an $85,000 salary!

Keep in mind, this applies only to federal taxes.

One concern many people have with this approach is, 'What about inflation?

I can’t live off this amount forever!'

But, living off dividends can actually be quite sustainable even with inflation.

Here's 2 reasons why:

1. Tax brackets and deductions get adjusted with inflation
For example, the standard deduction in 2024 was $14,600 instead of $15,000.

The tax bracket went from $47,025 to $48,350.

So these numbers always get adjusted with inflation.

However, it’s important to note that the future legislation might change the amounts/tax.

2. The second way you can protect yourself against inflation is by selecting high quality stocks/ETFs.

For example, Broadcom’s average 5Y dividend growth rate is above 14%.

That’s a lot higher than the annual inflation rate.

Along with tax brackets inflation adjustment, you will outpace inflation easily with quality dividend growth stocks.

What if I have other income types?

Even if you have other income types, such as wages, Required Minimum Distributions (RMDs) from retirement accounts, or Social Security income/pension, as long as your taxable income is below the thresholds-

Your qualified dividends will be taxed at 0%.

Say you generated $150,000 of qualified dividends, here’s how it would look:

So, if you are single, you would pay a 8.6% effective tax rate, or 2.3% if married.

You would’ve paid 24% federal tax rate + FICA taxes of 7% on a $150,000 salary!

The tax code can heavily favor dividend investors.

If you enjoyed this, be sure to:

1) Hit that follow button
2) Check out (link in bio)

Thanks to @money_cruncher for compiling this data!Dividendology.com