Jack FFR1846 wrote: ↑
Mon May 18, 2020 8:28 am
An important characteristic is tax timing. With a dividend stock, when dividend time comes, you get the dividend paid and you have no choice on that. You owe tax. Whether you're in a low tax bracket or high tax bracket, the dividends are taxable.
With a non dividend paying stock, you can choose to take the gain and pay tax when your strategy places it in the best position to do so. So perhaps you're in your first year of retirement and not taking social security, living on your investments only. Well, this is a good time to sell these stocks because as mentioned earlier, you are not taxed on that withdrawal, you're taxed on the gain. And with proper strategic planning, you pay zero tax.
Maybe you could expand on your statement "Whether you're in a low tax bracket or high tax bracket, the dividends are taxable."
Those who invest in the stock market know that capital gains (and dividends) are taxed at a lower rate than ordinary income (wage, interest, and earned income). This is pertinent to be aware of because many of us could qualify for the 0% capital gain/dividend tax.
Here is a 2020 taxable income for cap gains/qualified dividends table for a quick reference:
Married filing jointly in 2020 allows up to $80,000 in taxable income and single filer allows up to $40,000 in taxable income for the qualified dividends to be in the 0% tax rate for Federal.
Although this is from 2015, we'll take the graphic from Retire by 40 to illustrate rather that create a new one to see how he accomplishes not paying taxes on his qualified dividend income...
Fast forward to 2020, and adjustments can still include contributions to 403b/401k/457b and a mandatory pension. For deductions, most take the standard deduction which is $24,400 for married filing jointly in 2019 tax year and goes up to $24,800 for tax year 2020. In our case, we can max out three retirement plans (403b/457b/401k between the two of us with the catch up contributions for over age 50 as well) plus pay the mandatory pension contribution for one of us, take the standard deduction and have our taxable income well within the target zone of paying 0% on all of our qualified dividends in a taxable account.
These articles and blog posts all show examples and explain how not to pay taxes on your dividends. Obviously, state income tax is an issue, but not in all states.
Physician On Fire: https://www.physicianonfire.com/paynotax/
The Balance: https://www.thebalance.com/how-to-pay-n ... ins-357399
Retire By 40: https://retireby40.org/pay-no-tax-dividend-income/
The Motley Fool: https://www.fool.com/taxes/2018/05/22/h ... t-tax.aspx
Early Retirement Now: https://earlyretirementnow.com/2019/11/ ... ome-taxes/
Market Watch: https://www.marketwatch.com/story/heres ... 2019-11-22