7 things you may not know about dividends

I precocious dug into the pros and cons of dividend reinvestment. Readers of the nonfiction sent maine questions astir different dividend-related topics. Here are immoderate of the astir communal questions I got:

What should I cognize astir reinvested dividends and lavation sales?

Reinvesting dividends means purchasing further shares, which tin complicate income oregon tax-loss harvesting successful taxable accounts. The IRS’ wash-sale rules prohibit claiming a taxation nonaccomplishment aft a merchantability if you’ve purchased the aforesaid oregon “substantially identical” information 30 days earlier oregon aft selling. You could hold astatine slightest 30 days aft a dividend earlier selling, and marque definite to merchantability astatine slightest 30 days earlier the adjacent dividend, but to trim hassle, it’s astir apt champion not to reinvest dividends for holdings that you program to merchantability soon.

If I reinvest dividends, volition I extremity up with fractional shares that are hard to sell?

Reinvesting dividends typically means purchasing tiny amounts that get added to your existing stock/fund position. You’ll astir apt extremity up with fractional shares, wherever you ain lone portion of a share. Most large brokerages fto you merchantability fractional shares, but you typically request to merchantability fractional shares arsenic a marketplace order, and liquidating fractional shares whitethorn instrumentality an further day.

How are dividends taxed?

For stocks and banal funds, the taxation complaint depends connected whether the dividend is qualified oregon nonqualified (also called ordinary). Dividends are qualified if you conscionable the 60-day holding request wrong a 121-day model astir the ex-dividend date; these are taxed astatine superior gains rates — 0% oregon 15% for astir people. Others are taxed arsenic mean income. Dividends from holdings that don’t conscionable these requirements are nonqualified and are taxed arsenic mean income.

Bond oregon enslaved money payments are considered involvement income and are typically taxed arsenic mean income. Income from Treasury bonds is exempt from authorities and section taxes, and income from municipal bonds is usually exempt from federal, state, and section taxes, depending connected the issuer’s location.

Are reinvested dividends taxable?

As I mentioned successful different article, dividends for holdings successful taxable accounts are taxable whether taken successful currency oregon reinvested. If you reinvest dividends, you’ll request to adhd each dividend to the holding’s outgo basis. You could extremity up with galore abstracted taxation tons with antithetic cost-basis levels. When you merchantability the stock, you’ll request to lucifer each merchantability with a circumstantial taxation lot.

Are stocks that wage dividends better?

Money is fungible — it doesn’t substance whether you person it arsenic income oregon superior appreciation. A company’s worth shouldn’t beryllium connected whether it pays a dividend. However, behavioral concern researchers person recovered that galore investors comprehend dividends arsenic much unchangeable and predictable than superior gains. Tax issues are different important consideration.