Question:

HOw are dividends taxed?

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DO I have to pay tax for the dividends when I sell the stocks or is it taxed each year?

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  1. You pay taxes for dividends in the year they are distributed.


  2. Dividends are taxed each year.  You will receive a 1099-DIV from your broker.

  3. You pay tax on the dividends annually.  There are 2 types of dividends, Ordinary Dividends and Qualified Dividends.  Ordinary dividends are taxed as ordinary income.  Qualified Dividends are taxed at the lower long-term capital gains rate which is usually 15% but can be as low as 0% in 2009 and 2009.  The reduced LTCG rate will return to 5% in 2010.

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