Why Taxes on Some Dividends Are Higher Than Others

Learn the tax rules on dividends and why tax rates differ so much.

Mar 16, 2014 at 1:31PM

Investors are relying on dividend-paying investments now more than ever to get the income they need. But many get confused about why there are so many different tax rates that apply to dividend investments.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, goes through the rules, pointing out that rates of 0%, 15%, or 20% can apply to qualified dividends on ordinary stocks that are eligible for preferential rates. These stocks include not only high-yielding Frontier Communications (NASDAQ:FTR) and other U.S. income-producing stocks but also U.S.-listed foreign stocks like BP (NYSE:BP). Dan also notes that Annaly Capital (NYSE:NLY), American Capital Agency (NASDAQ:AGNC), and other real-estate investment trusts often produce ordinary income because of their status as pass-through entities. Moreover, Dan goes through the taxation of Kinder Morgan Energy Partners (NYSE:KMP) and other master limited partnerships, which incur different types of taxes on their distributions because of the special rules applying to energy companies. Dan concludes that unless you use a tax-deferred account, keeping track of all these rates is important to make sure you know how much tax you'll have to pay.

Which dividend stocks are the best?
Regardless of taxation, dividend stocks are still a smart move for most investors. Indeed, one of the dirty secrets that few finance professionals will openly admit is that dividend stocks as a group handily outperform their non-dividend-paying brethren. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.


Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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