Taxation of Dividends after 2010
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Taxation of Dividends after 2010
Can someone clarify, without getting into politics, what the CURRENT PROPOSAL is regarding taxation of dividends for 2011. One place I heard "ordinary income rates" across the board and in another place I heard "same as now (max 15%) for income amounts under $250,000 THEN THE EXCESS at ordinary income tax rates."
"In his 2011 budget, the President has proposed making permanent the zero and 15 percent rates on dividends and capital gains for couples filing jointly with income of up to $250,000 and for other taxpayers with income of up to $200,000. For taxpayers with income above those limits, the President proposes a tax rate of 20 percent on dividends and capital gains."
http://www.cbo.gov/ftpdocs/112xx/doc112 ... dixA.shtml
http://www.cbo.gov/ftpdocs/112xx/doc112 ... dixA.shtml
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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- Posts: 25
- Joined: Thu Apr 15, 2010 7:51 am
Thank you. But that is still somewhat unclear. From what you wrote, it sounds like ALL cap gains and dividends will be taxed at the higher rate if a couples income is $250001 but NONE of that will be taxed at the higher rate if their income is $249999.
Oh and if passed, do these amounts adjust for inflation in future years?F
Oh and if passed, do these amounts adjust for inflation in future years?F
i think the new healthcare law will add 3.4% to the rate-so 23.4% is my best guess...LTAccumulator wrote:Thank you. But that is still somewhat unclear. From what you wrote, it sounds like ALL cap gains and dividends will be taxed at the higher rate if a couples income is $250001 but NONE of that will be taxed at the higher rate if their income is $249999.
Oh and if passed, do these amounts adjust for inflation in future years?F
cheers,
RIP Mr. Bogle.
We have a graduated income tax system. Different dollars are taxed at different rates, depending on whether they are first dollars or last dollars.LTAccumulator wrote:Thank you. But that is still somewhat unclear. From what you wrote, it sounds like ALL cap gains and dividends will be taxed at the higher rate if a couples income is $250001 but NONE of that will be taxed at the higher rate if their income is $249999.
Oh and if passed, do these amounts adjust for inflation in future years?F
For example, using the current law, if you are a married couple with no income other than $100,000 of qualified dividends and you take the standard deduction and two exemptions, your taxable income on form 1040 line 43 is $81,300. If you then go through the Qualified Dividends and Capital Gain Tax Worksheet—Line 44 in the 1040 instructions, you will find that your tax is $2010. This is not 15% of your $100,000 of income, nor 15% of your $81,300 of taxable income. It is 15% of the amount by which $81,300 exceeds $67,900 (or $13,400). Most of your dividends were taxed at 0%. Only the last $13,400 were taxed at 15%.
Note that $67,900 is the beginning of the 25% bracket. Only when you reach the 25% ordinary bracket do your dividends become taxable.
I would expect the same behavior under the proposal. If you have $300,000 in dividends and no other income, the first $67,900 will not be taxed at all, the next $182,100 will be taxed at 15%, and any dividends above $250,000 reduced by your deductions and exemptions would be taxed at the proposed 20% rate. Just my guess as to the meaning of the short-hand quoted
The 15% rate is a marginal rate, not a flat rate. I expect the proposed 20% rate is also a marginal rate, not a flat rate. That's just the way people talk about tax rates, don't you?the President has proposed making permanent the zero and 15 percent rates on dividends and capital gains for couples filing jointly with income of up to $250,000 and for other taxpayers with income of up to $200,000. For taxpayers with income above those limits, the President proposes a tax rate of 20 percent on dividends and capital gains.
sscritic,sscritic wrote:We have a graduated income tax system. Different dollars are taxed at different rates, depending on whether they are first dollars or last dollars.LTAccumulator wrote:Thank you. But that is still somewhat unclear. From what you wrote, it sounds like ALL cap gains and dividends will be taxed at the higher rate if a couples income is $250001 but NONE of that will be taxed at the higher rate if their income is $249999.
Oh and if passed, do these amounts adjust for inflation in future years?F
For example, using the current law, if you are a married couple with no income other than $100,000 of qualified dividends and you take the standard deduction and two exemptions, your taxable income on form 1040 line 43 is $81,300. If you then go through the Qualified Dividends and Capital Gain Tax Worksheet—Line 44 in the 1040 instructions, you will find that your tax is $2010. This is not 15% of your $100,000 of income, nor 15% of your $81,300 of taxable income. It is 15% of the amount by which $81,300 exceeds $67,900 (or $13,400). Most of your dividends were taxed at 0%. Only the last $13,400 were taxed at 15%.
Note that $67,900 is the beginning of the 25% bracket. Only when you reach the 25% ordinary bracket do your dividends become taxable.
I would expect the same behavior under the proposal. If you have $300,000 in dividends and no other income, the first $67,900 will not be taxed at all, the next $182,100 will be taxed at 15%, and any dividends above $250,000 reduced by your deductions and exemptions would be taxed at the proposed 20% rate. Just my guess as to the meaning of the short-hand quotedThe 15% rate is a marginal rate, not a flat rate. I expect the proposed 20% rate is also a marginal rate, not a flat rate. That's just the way people talk about tax rates, don't you?the President has proposed making permanent the zero and 15 percent rates on dividends and capital gains for couples filing jointly with income of up to $250,000 and for other taxpayers with income of up to $200,000. For taxpayers with income above those limits, the President proposes a tax rate of 20 percent on dividends and capital gains.
I hope you are right but fear you are wrong. I belive the new 20% rate will apply to all dividends for those earning above $200k in income.
cheers,
RIP Mr. Bogle.
But you changed the question.grok87 wrote: sscritic,
I hope you are right but fear you are wrong. I belive the new 20% rate will apply to all dividends for those earning above $200k in income.
cheers,
My example had no earned income, only dividend income. If you have $250,000 of earned income after reductions for deductions and exemptions and another $200,000 of dividend income (total income of $450,000), the $200,000 of dividend income will be taxed at the marginal rate of 20% because it is all above $250,000.
If your earned income is $100,000 and you have $200,000 of dividend income, I would expect only $50,000 of the dividend income to be taxed at 20%, since the first $150,000 of dividend income is still below $250,000 of total taxable income. That's just my guess about a law that doesn't exist.