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Top Dividend Stock Searches This Month
As we round out our February series on dividend investing, let’s review what we’ve covered so far:
You can collect dividend income as cash to do with as you please, or you can reinvest it in new shares of stock. The latter usually happens automatically if you select this option in your brokerage account.
You might have to deal with taxes on your dividend income. But you might not have to…
Scroll with us for the most important details on how the IRS handles dividend income.
Can You Avoid Taxes on Dividend Income?
When You Don’t Have to Pay Taxes on Dividend Income
Let’s cover the (mostly) good news first.
For the 2022 tax year (the one you already filed or are about to file), you don’t have to pay taxes on dividend income if your tax status is:
In these scenarios, the federal tax rate on dividend income is 0%.
In a second, we’ll run down the tax rate for people with taxable income higher than what you see above.
Before we get there, know that if you keep your dividend stocks and dividend income in a retirement account, you can avoid taxes. Consult your tax and/or investment advisor to confirm the particulars of your situation, but generally:
So the Roth IRA tends to make more sense for dividend investing from a tax standpoint. Of course, IRAs – aside from dividend concerns – have their own rules, regulations, and income limits on contributions.
Here again, consult your tax person to be sure of the particulars of your situation and for specific details on how to report dividend income.
For Everyone Else, When You DO Have to Pay Taxes on Dividend Income
For the rest of us, it looks like this for the 2022 tax year:
These numbers rise roughly 7% across filing statuses for the 2023 tax year.
The Bottom Line: Taxes. Something most of us don’t like to think about, let alone deal with. But they’re a fact of life that’s extra important if you’re an investor.
If you go big on dividend investing, it might make sense to use a Roth IRA. But you need to consider factors other than shielding your dividends from taxes when making this and other investing decisions.
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