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Why Zacks? Learn to Be a Better Investor. Forgot Password. Figuring the tax on qualified dividends can throw even the most seasoned tax accountants for a loop. There are definitions to memorize, tax codes to adhere to and numbers to crunch.
Dividends are a type of investment income that's generated from stocks, as well as from mutual funds that contain stocks. They represent a share of corporate profits paid out to investors, and they're taxable. If your income includes dividends, this presents some special considerations at tax time. Dividends can be taxed either at ordinary income tax rates or at the preferred long-term capital gains tax rates. Dividends that qualify for the lower long-term capital gains tax rates are referred to as qualified dividends. To be considered a qualified dividend, an investor must have held or owned the stock unhedged for at least 61 days during the day period that begins 60 days before the ex-dividend date , according to the IRS. But this holding period can be longer in the case of preferred stock.
Therefore your line 11 figure may differ from the IRS tax table, which only lists tax due amounts for ordinary income. Let's say you have a capital gains distribution. This results in a lower tax amount than in the IRS tax table because capital gains are taxed at a lower rate than other types of income such as wages or salary. Go to TurboTax. Why sign in to the Community?
Long term investments pay less in taxes - these are investments that you typically hold for longer than one year. Let's break down what the capital gains tax brackets look like, the income cut-offs, and more below. You can see how these compare to the regular Federal tax brackets here. Take action now with TurboTax and get your taxes done. Check out TurboTax here.