Recommendations & StrategiesQuestion 55 of 100
A client asks about the tax treatment of qualified dividends. Qualified dividends are generally:
a.Taxed as ordinary income at the highest rate
b.Taxed at preferential long-term capital gains rates
c.Completely tax-free
d.Subject to payroll taxes
Explanation
Qualified dividends meet holding-period and other requirements and are taxed at the lower long-term capital gains rates rather than as ordinary income. This favorable treatment enhances after-tax returns on eligible equity income. Nonqualified dividends are taxed as ordinary income.
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