The below article is no longer applicable as the dividend tax rates were kept at 15% for 2011 as a result of the recently passed extension to the Bush tax cuts.
How Much Will Tax Rates Increase?
As of now, the Bush tax cuts are set to expire which means that qualified dividends will be taxed at ordinary income tax rates. More specifically, if you are at the 28% ordinary income tax bracket (single: $82.4K-$171.85K; joint: $137.3K-$209.25K), then you will be taxed 28% on dividend income. As a reminder, the current dividend tax rate is 15%, so it would be going up 13% to 28% for this tax bracket. For the highest income earners, the dividend tax rate could be 39.6%! Yikes! BUT, and this is very important, lawmakers may step in & order a provision similar to what the Obama administration is advocating; limiting the dividend tax rate to a more manageable 20%. Still, there are no guarantees as lawmakers never did anything with the “no 2010 estate tax debacle” (i.e. you could still die & not owe estate tax).
How Should I Prepare For the Tax Rate Hike?
Unfortunately, we do not have a secret recipe for you to follow because there is so much uncertainty as to the magnitude of the tax rate hike. Given this fact, it would be prudent not to make any rash decisions because of what could potentially happen to tax rates. In addition, tax rates are just one of the many factors you should consider when making an investment decision.
How Are Municipal Bonds Taxed?
Municipal bonds are bonds issued by the city, county & state governments and are often seen as less risky investments than equities. In addition, the investor is not subject to federal tax on the interest income & also wouldn’t have to pay state/local tax on the interest if the bonds are issued by the investor’s city, county or state.
More Dividend Tax Questions?
Related Articles
->The Homebuyer Tax Credit Extension is For Paperwork
->Why do I have to Pay Estimated Taxes?
->Are Energy-Efficient Windows a Tax Credit for Businesses?
->Whoa…No Estate Tax in 2010? What Should I Do?
->Getting Help with Roth IRA Tax Questions
->Tax Advice For Couples
->Have Tax Questions Like…What to Do With Net Operating Losses?
->Year End Tax Planning Tips You Don’t Want to Miss
