The income that dividend stocks generate typically get taxed at a preferential rate. Dividends can be tax-free for some low income tax payers. There are certain things that tax payers should be aware of to avoid endangering the dividend tax break. There may be some investments called a ‘dividend’ that don’t actually pay the dividends that would qualify for the lower tax rate. A company wishing to pay qualified dividends must either be organized as a U.S. corporation or be considered a qualified foreign corporation because only certain foreign corporations can pay qualified dividends. This article also discusses the set holding people that people must hold stock for in order for their dividends to be qualified for the preferential tax rate. “By keeping these three potential pitfalls in mind, you can make sure that you’ll capture as much tax benefit as possible from your dividends and not get a nasty surprise at tax time.”
See Dan Caplinger, 3 Dividend Tax Traps You Must Avoid, My San Antonio, April 13, 2016.
