The New, Lower Tax on Dividendshttp://www.fool.com/personal-finance/taxes/2003/06/20/the-new-lower-tax-on-dividends.aspx Roy Lewis
June 20, 2003
One of the provisions of the recently passed Jobs and Growth Tax Relief Reconciliation Act of 2003 included changes in how dividends are taxed. Investors will now pay lower tax rates on dividends received from domestic corporations and qualified foreign corporations.
In the past, dividend income was just another source of ordinary income, taxed at your normal tax rate, which could be as much as 35%. No longer. Beginning in 2003 the maximum tax rate on qualifying dividends has been dropped to 15% for most people. And for those of you in the 15% or 10% bracket, qualifying dividends will be subject to a maximum tax of only 5%.
Seems simple, right? Well, it's not as simple as you might think.
So if you're thinking about "trading" dividend-paying shares in an attempt to simply secure a dividend and have that dividend taxed at a lower rate, don't bother. The holding period rules will simply render your dividends as nothing more than regular income taxed at your normal tax rate.
Will the company tell you if your dividends are qualified? Nope. It'll be your responsibility to determine if any (or all) of the dividends received will qualify for the lower tax rate. This will mean even more record keeping on your part, so be forewarned.
Qualifying dividend income
So if you're invested in a foreign corporation that pays dividends, make sure that this corporation will be treated as a qualifying foreign corporation. Take the matter up with the shareholder relations folks at the corporation. They would certainly know if they'd be treated as a qualified foreign corporation.
Not all dividends are created equal