What makes a dividend qualifying

Under IRS guidelines, the ex-dividend date is the date after the dividend has been paid and processed and any new buyers would be eligible for future dividends. The recent election results could change this. Biden also would like long and short term capital gains taxes to be subject to the 3. By Paul Nadeau, Jr.

November 11, By Moshe Golden November 02, Call Email Visit. They should, because they're the long-term capital gains rates. These tax rates are what investors pay on gains for any stock investment they've held for at least one year. For qualified dividends, you gain that same highly advantageous tax rate. Earning dividend income is an excellent way to build long-term wealth. It rewards the patient investor, who's willing and able to buy great companies, then keep holding them while getting paid as those businesses get bigger and stronger, and hopefully grow those dividend payments along the way.

Simply put, buying great businesses and then sitting on your hands works great for dividend investing. Smart tax planning should play a big role in how you optimize your results.

That includes taking advantage of tax-deferred accounts like an IRA , or tax-free accounts like a Roth IRA that can help you avoid almost all taxes, even on most dividend income. But when you're investing in a taxable account, the tax man cometh every year.

So hedging your dividend stock portfolio toward stocks that pay a qualified dividend can make a big difference in how much wealth you can build -- and retain -- before you're ready to start enjoying the fruits of your investing labors. Discounted offers are only available to new members. Stock Advisor will renew at the then current list price.

Investing Best Accounts. Skip to Main Content. Search fidelity. Investment Products. Why Fidelity. Print Email Email. Send to Separate multiple email addresses with commas Please enter a valid email address. Your email address Please enter a valid email address. Message Optional. Qualified dividends Certain dividends known as qualified dividends are subject to the same tax rates as long-term capital gains, which are lower than rates for ordinary income.

Additional resources Annual Credit for Substitute Payments If you have a margin account, learn how payments made in lieu of dividends may impact your taxes. Discount offers valid only when using a link on Fidelity. Software products are provided as a convenience to you, and Fidelity bears no responsibility for your use of, and output associated with, such products. The information and products made available to you are not intended to be, and should not be construed as, legal or tax advice or a legal opinion.

Intuit is solely responsible for the information, content and software products provided by Intuit. For preferred stock , the holding period is more than 90 days during a day period that starts 90 days before the ex-dividend date. For mutual funds, the holding period requirements are somewhat different. In this case, a mutual fund must have held the security unhedged for at least 61 days of the day period which began at least 60 days before the ex-dividend date of the security.

Because the holding period requirements can be difficult to assess, consider the following hypothetical example:. An investor receives dividends as qualified from shares in mutual fund X. That investor bought 1, shares of fund X on May 1 for the tax year in question.

That investor then sold of those shares on June 1, but continued to hold the unhedged remaining shares. The ex-dividend date for the fund in question was May Within the day window, the investor held shares for 31 days from May 1 through June 1 and the remaining shares for at least 61 days from May 1 through July 1.

This means that the dividend income earned from the shares held for at least 61 days would be considered qualified dividend income, while the income earned from the shares held for just 31 days would be unqualified dividend income. The investor could then use the qualified dividend per share price in order to calculate the actual amount of qualified dividends for tax reporting purposes.

For most everyday investors, the question of whether a dividend will be qualified or not is usually a non-issue. The reason for this is that most regular dividends from U. Nonetheless, particularly for those investors focused on foreign companies, REITs, MLPs, and other types of investment vehicles indicated above, the difference between qualification and the alternative can be significant when it comes time to calculate taxes.

The most important action an investor can take is to hold stocks for the minimum holding period as stipulated by the type of stock as detailed above. Qualified dividends are taxed at the same rate as long-term capital gains, lower than that of ordinary dividends, which are taxed as ordinary income. This was done to incentivize companies to reward their long-term shareholders with higher dividends and also incentivizes investors to hold their stocks for longer to collect these dividends payments.

The stocks that pay the dividends must be held for at least 60 days within a day period that begins 60 days before the ex-dividend date, which is the first date following the declaration of a dividend on which the holder is not entitled to the next dividend payment. The number of days includes the day the recipient sold the stock but not the day he acquired it, and he cannot count days during which his "risk of loss was diminished," according to IRS rules. Your broker will break out the qualified and ordinary dividends that are paid to you, and are reported in separate boxes on the IRS Form DIV that your broker will send to you each tax year.

Ordinary dividends are reported in box 1a, and qualified dividends in box 1b. Accessed Aug. Dividend Stocks.