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How to pay $0 on dividend income.
Published 3 months ago • 3 min read
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Welcome back, INVESTOR!
Shoutout to reader Cheyne who had a question about taxes and dividends, so that'll be the subject of this newsletter.
You're probably itching to get to the latest buys and sells, so it'll be short.
I'm not a tax professional, this is not financial advice and these are thoughts based on information you can find at Nerdwallet.com
This will apply to taxable accounts because dividends received in a traditional retirement account will be paid at a later date and dividends received in a ROTH will never be taxed.
There is a wrinkle though with MLP (Master Limited Partnership) distributions, but if the annual amount received in a tax-sheltered account is less than $1,000, you don't need to worry.
So, dividend income is money that you get from owning stocks that pay you a share of their profits.
The government usually taxes this money, but you can avoid paying taxes on some of it if you do a few things:
First, make sure that your dividends are “qualified”.
Qualified dividends are taxed at a lower rate than non-qualified dividends, which are taxed like your regular income.
Second, keep your total income below a certain level.
This includes your salary, interest, dividend income, rental income, and any other money you make.
The level depends on your filing status, such as single or married.
For example, if you are single and your total income is less than $44,625 in 2023, you will pay 0% tax on your qualified dividends.
If your income is higher, you will pay 15% or 20% tax on your qualified dividends, depending on how much higher as shown below.
Source: NerdWallet.com
Third, know that deductions like student loan interest and IRA contributions can lower your income.
The more deductions and credits you have, the lower your income will be, and the less tax you will pay on your dividends.
And, in 2024, the income thresholds have increased by 5.4% as shown below.
Source: NerdWallet.com
To recap, you can pay $0 on your dividend income if you own the stock for long enough, keep your income low, and use tax breaks.
I'd love to know if you managed to pay 0% tax on your dividend income by hitting reply!
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That said, let’s get to the moves made this week. And remember, you can always check out the PORTFOLIOS, the PODCAST, or see what’s cooking on the YouTube channel.
🤑 Mike the Dividend Guy had a VERY informative episode all about pipelines and utilities, plus a few of his favorite picks.
🎧 You all know I'm a fan of Chris Mayers' investing style, so this recent episode of We Study Billionaires was a great listen - not to mention one of his favorite investments and why he loves long-term compounding.
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