Paying Taxes on Dividends

[llckll]

Hi All,

Are you taxed twice on dividends if they're your primary source of income now or during retirement?

Once as a capital gains tax and once again as ordinary income tax?

The dividends will not be part of a DRIP.

Thanks,
C

[disneysteve]

Are you taxed twice on dividends if they're your primary source of income now or during retirement?

Once as a capital gains tax and once again as ordinary income tax?

No. Dividends aren't taxed as capital gains since they aren't capital gains - they're dividends.

[Petunia 100]

Do you mean you are reinvesting dividends, so are concerned that down the road when you sell, they will look like gains?

Keep careful track of your basis. Retain all of your statements. Don't rely on your broker to keep track of your basis. Brokers sometimes merge with other brokers and old history is lost.

[llckll]

No, they will not be re-invested.

Let's say a person is 55 years of age, retired from the workforce early and receives $10,000 per month in dividends and this is their only source of income.

So is the only form the person needs to fill out is Form 1099-DIV and pay the taxes on the dividends for the year?

[disneysteve]

No, they will not be re-invested.

Let's say a person is 55 years of age, retired from the workforce early and receives $10,000 per month in dividends and this is their only source of income.

So is the only form the person needs to fill out is Form 1099-DIV and pay the taxes on the dividends for the year?

The recipient doesn't fill out the 1099-DIV. The company paying the dividend does that. You then use that to report your dividend income and pay your taxes. You would file your 1040 and part of that captures your dividend income.

[llckll]

The recipient doesn't fill out the 1099-DIV. The company paying the dividend does that. You then use that to report your dividend income and pay your taxes. You would file your 1040 and part of that captures your dividend income.

So then how much taxes would a married couple be required to pay on $10,000 of monthly dividends or $120,000/year?

Would a couple filing their taxes married/joint pay 25% income tax rate and ordinary dividend tax rate of 25% for a total tax of 50%?

[disneysteve]

Would a couple filing their taxes married/joint pay 25% income tax rate and ordinary dividend tax rate of 25% for a total tax of 50%?

No. You don't get double taxed. They only tax the income once.

[disneysteve]

As for how much tax you would pay, it depends on a lot of factors but don't forget that taxes aren't flat. They are graduated. It isn't 25% on every dollar earned although that is a reasonable way to come up with a ballpark number.

Any deductions then count against the tax due - mortgage interest, charitable donations, medical bills, etc.

[llckll]

Thanks, disneysteve and Petunia for your help.