Talking to my financial advisor yesterday, he mentioned tax considerations when investing in dividends. Warned us we would pay regular income tax rates versus the 15-20% I read on this site and elsewhere. Also, he mentioned qualified and unqualified dividends. I tried to research and on
www.dividends.com the 2012 fiscal cliff legislation that went into effect kept capital gains and dividend taxes at 15%, unless adjusted gross income is over $400kind/$450kcouple, raising it to 20%. However, there is a statement that unqualified dividends would be taxed at the regular income tax schedule up 39.6%.
So what constitutes qualified versus unqualified? And if I check the box to reinvest dividends, I'm guessing they go down as income but are they taxed at 15-20% or at my personal income tax rate based upon total earnings? I've got an email out to my accountant as well. I'm not trying to play a tax scheme here, just trying to understand the differences between the two types of dividends.
On a better note, my advisor did say we have learned something that takes many 20+ years to figure out.
Dividend stocks that combine growth and a healthy dividend return are better during downturns and also allow you to buy shares at a lower average cost if reinvested during growth years, prior to the need to take the cash payout. He said, keep it up and my goal should be to put him out of a job! Thanks to all that contribute to this thread. It has really opened up our eyes to different avenues to grow our wealth and invest to have our "employees" work harder for us.