Dividend Tax Rates Extended Through 2012

.

As you are all hopefully aware, the Bush Tax cuts will be extended another 2 years and also the amount employees pay into Social Security will be reduced to 4.2% from 6.2%, but our focus is on the Dividend Tax Rate extension.

Another reason why Dividend investing is a great way to fuel your investment portfolio is the tax treatment.  Qualified Dividends are taxed at 0% (aka non-federally taxed) when your income level is in the 10-15% tax bracket - hint to all of you low-income earners, college students : )   It then is maxed at 15% tax rates for all higher level brackets above the 15% income bracket.  What is a qualified dividend you ask:

In order to qualify:
1. The dividend must have been paid by an American company or a qualifying foreign company.
2. The dividends are not listed with the IRS as dividends that do not qualify.
3. The required dividend holding period has been met. (Compliments to Investopedia.com)
How great of a way for a beginner investor to have qualified dividends in their portfolio?  You could potentially pay 0 in taxes on these dividends as your portfolio grows due to a Dividend Reinvestment Plan!  All other Non-Qualified Dividends are taxed at your ordinary income tax levels.  The big goal is that 3rd requirement of holding period.  Therefore, the hold and reinvest dividends is key.

Dividend Investing Tax Rates will be extended through the 2012 Calendar year.  You can possibly use that extra 2% per paycheck if you an employee to invest into more dividend paying companies (Think before you spend that extra 2%; buy assets!)  Thus, Dividend Investing is still extremely tax efficient and is a great way to grow your portfolio.  However, these rates as of right now will go back to ordinary income levels for all dividend at the start of 2013; hopefully something changes by then.

I hope you all enjoyed the holidays, seeing family & friends and eating many deserts and delicious foods!  Market opens tomorrow - anyone making any end of the year tax moves?  Talk to you all soon!

-Lanny B