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Dividend Taxes Explained [United States 2021] - YouTube
Channel: Dividend Data
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today i'm going to explain how dividends
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are taxed in the united states
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as a dividend investor myself
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understanding the tax implications of
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this strategy is very important
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keep in mind i'm not a tax advisor so
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this video is only based on my personal
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research and experience
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if you stick around to the end i'll
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share a way you may be able to avoid
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dividend taxes altogether my name is
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zach and you should leave a like and
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subscribe to the channel if you enjoy
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the video
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first let's get some basic definitions
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out of the way a dividend is a
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distribution of
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profits by a corporation to its
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shareholders this is one way that you
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can earn a return on investment without
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having to sell your stock
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earned dividends are considered a form
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of income meaning you have to pay taxes
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on it however
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the exact tax rate may change depending
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on the type of dividend and your income
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in the united states there are two
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classifications of dividends
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qualified and non-qualified a qualified
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dividend is taxed at the long-term
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capital gains tax rate which is lower
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than the regular income tax rate
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non-qualified dividends often referred
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to as ordinary dividends are taxed at
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the higher regular income tax rate so i
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don't know about you
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but i'd like to pay less taxes so what
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makes a dividend qualified
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a qualified dividend must be paid by
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either a u.s company
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a company in u.s possession a foreign
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company residing in a country that is
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eligible for
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benefits under a u.s tax treaty or a
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foreign company's stock that can be
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easily traded on a major u.s stock
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market
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but wait there's more these dividends
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must also meet holding period
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requirements the stock must have been
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held in excess of 60 days during the 121
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day period beginning
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60 days before the dividend execution
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date also
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some dividends are automatically exempt
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from consideration as a qualified
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dividend
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these include dividends paid by reits
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mlps those on employee stock options and
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those on tax-exempt companies
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all these will be treated as
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non-qualified dividends so that may seem
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like a lot of requirements but it's
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actually pretty simple
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as long as you invest in eligible
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companies which is most
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and hold long term then the overwhelming
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majority of your long-term dividend
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income
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will be considered qualified this means
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you can pay the lower tax rate let's
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take a look at how this actually works
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in 2021 for single filers if you make
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less than forty thousand
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four hundred dollars in income then your
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dividends will be taxed at zero percent
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if you make between forty thousand four
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hundred and one dollars and four hundred
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forty five thousand eight hundred fifty
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dollars then your dividends will be
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taxed at fifteen percent
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and if you make more than four hundred
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forty five thousand eight hundred fifty
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one dollars then your dividends will be
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taxed at twenty percent
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this is for qualified dividends if you
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look on the left side of this chart you
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will see that the respective tax rates
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are much higher for non-qualified
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dividends
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in 2021 for joint filers if you make
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less than eighty thousand eight hundred
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dollars in income then your dividends
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will be taxed at zero percent
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if you make between eighty thousand
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eight hundred one dollars and five
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hundred
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one thousand six hundred dollars then
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your dividend will be taxed at fifteen
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percent
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and if you make five hundred one
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thousand six hundred one dollars or more
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then your dividends will be taxed at
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twenty percent once again this is for
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qualified dividends and the respective
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tax rates for non-qualified are much
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higher the income requirements and tax
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rates are not set in stone and have been
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altered over time with that said let's
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hope dividends continue to get taxed at
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a lower rate
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let's say you watched this video and
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thought it's sweet the dividends are
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taxed at a lower rate but i'd rather not
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pay any taxes
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well luckily there's actually a way to
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avoid taxes on dividends
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this is through a tax shielded account
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such as a roth ira
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it's a retirement account where you can
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contribute already taxed money to invest
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once the money is in the account you
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don't have to pay any taxes
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as long as you can take it out in
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accordance with the rules before you get
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too excited there is a limit to the
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amount of money you can contribute
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annually and you can be disqualified
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from contributing if you make too much
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income but for the average person
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a roth ira is a great way to save for
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retirement and let your money compound
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free thank you for watching dividend
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data i'd greatly appreciate if you could
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leave a like and subscribe to the
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channel
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if you follow me on twitter link in the
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description you can get real-time
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updates on my buys and dividends coming
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in
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also you can follow me on instagram at
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dividend data you can support the
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channel over on patreon where you can
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gain access to a community discord
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server the link is in the description
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please leave a comment below and thank
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you for watching
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