#1
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Owning dividend stocks.
I was planning on buying a significant amount of Vanguard Dividend Growth Fund (VDIGX), but I understand dividend's are taxed differently than capital gains of normal stocks.
I see that they are both 15%, but do I need to immediately file all dividend gains for that year under income tax or only when I cash out? |
#2
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Re: Owning dividend stocks.
They aren't both 15%. The former.
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#3
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Re: Owning dividend stocks.
Capital gains only impact your taxes when they are realized, ie sold. Long term and short term capital gains are taxed at different rates. Dividends count as that year's income since you receive the check right away (if you automatically reinvest, you still "got the check" and then bought more shares) at your normal tax rate.
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#4
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Re: Owning dividend stocks.
It sounds like you guys might be forgetting about qualified dividends. If the dividends are qualified, they are taxed at the same rate as capital gains. If not, they are taxed as ordinary income. You should get a report from the mutual fund indicating how much they paid in dividends and how much of those dividends were qualified.
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#5
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Re: Owning dividend stocks.
[ QUOTE ]
It sounds like you guys might be forgetting about qualified dividends. If the dividends are qualified, they are taxed at the same rate as capital gains. If not, they are taxed as ordinary income. You should get a report from the mutual fund indicating how much they paid in dividends and how much of those dividends were qualified. [/ QUOTE ] Did not know that, thanks. Do you know what types of dividends tend to be qualified? |
#6
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Re: Owning dividend stocks.
Dividends from REIT's (and some other tax-advantaged investments) are not qualified dividends. For other stocks, if they are sold soon after the dividend, then that dividend is not qualified. So a mutual fund with a lot of turnover is likely to have a lower fraction of its dividends be qualified. Interest on bonds and short-term capital gains realized by a mutual fund are paid to you as a "dividend"; but these are not qualified dividends.
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#7
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Re: Owning dividend stocks.
[ QUOTE ]
Dividends from REIT's (and some other tax-advantaged investments) are not qualified dividends. For other stocks, if they are sold soon after the dividend, then that dividend is not qualified. [/ QUOTE ] Not quite. You get qualified treatment (which is favorable) if you hold the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. So you could get the dividend, sell the stock a day or two later, and still get qualified dividend treatment as long as you had held the stock for at least 60 days prior to the dividend. [ QUOTE ] So a mutual fund with a lot of turnover is likely to have a lower fraction of its dividends be qualified. Interest on bonds and short-term capital gains realized by a mutual fund are paid to you as a "dividend"; but these are not qualified dividends. [/ QUOTE ] Yes. Active trading in mutual funds can generate large tax bills, even if the fund had a negative return for the year. On the flip side, it's possible to buy into a mutual fund with very long-held positions that have appreciated substantially over a number of years. If the fund were to liquidate thost positions (like Sequoia did with some of its Berkshire Hathaway), that would generate taxable gains even though you had just bought the fund (and didn't participate in the runup of the underlying shares). |
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