John M. Hoffman & Associates CPAs

Frequently Asked Questions

Investment Income (Interest & Dividends)

 

What is the significance of a dividend being called a “qualified dividend”?

Qualified dividends are taxed at a preferentially lower tax rate. For most taxpayers, the maximum tax bracket for qualified dividends is 15%. For taxpayers in a 15% tax bracket, qualified dividends are taxed at 5% (federal tax rates not state tax rates).

The concept behind a qualified dividend being taxed at a preferential rate is that a qualified dividend is a corporation’s distribution of after tax profits to its shareholders. The preferential tax rate is a way of mitigating the double taxation of such dividends.

How do I know if the dividend that I receive is a “qualified” dividend?

Qualified dividends are distinguished on the form 1099-DIV, which is one of the reasons we like to get these forms as part of preparing your taxes.