Around the months of March, April and May, most of the United States turn their attention in one way or another to taxes. Many folks find themselves completing their tax returns, only to find out they owe the federal, state or local government an additional amount of money that hadn't been previously withheld in their W-2 or quarterly payment checks.
Naturally, when tax season comes around, many folks look to find ways to avoid paying taxes. The most common tax deductions are usually seen by increasing charitable giving or paying interest on mortgages, both Holy Grails and therefore unlikely to be radically changed in their tax status.
One area that gets less attention is from dividend income.
Tax rates on dividends is a progressive tax, like the majority of our federal income tax rate structure. For those filers in the 0 or 15% tax bracket, dividend income is tax-free. While those in the 25%, 28%, 33% or 35% will notice that their dividend income is taxed at a 15% rate. Only those filers that are in the 39.6% marginal tax rate (meaning individuals over $415,000 or married couples over $466,000) would see their tax rate on dividend income at 20%.
Any way you slice it, dividend income (or income on your money) is taxed at a very reduced rate to ordinary income.
The majority of American families actually find themselves in the 0% or 15% income tax rate since the median income for the an American family is roughly $55,000, which is well below the $75,000 threshold for married couples, and even likely below the rate for individuals once you enter in your standard deductions, etc.
For most Americans, dividends represent a small, or even non-existent, part of their taxes. Most Americans would do well by themselves to invest in stocks that pay a dividend, as it is a way to increase passive income, without substantially (or at all) increasing their taxes.
Additional Reading:
"Fewer Shareholders Pay U.S. Taxes on Dividends" by Richard Rubin
No comments:
Post a Comment