Tax Relief With These Dividends

Income from savings assist retirees to round out their retirement income needs. Typically, the well-to-do have selected municipal bonds for their tax-free income. However because of their tax-free condition, municipal bonds usually pay a substantially lower rate of interest than ‘taxable’ corporate bonds. But whether well-to-do or not, every retirees require tax relief. Other income-based investments are usually taxed at normal income rates (up to 35%). However, the tax relief on qualifying dividends makes high-dividend shares a reasonable alternative for both average and rich retirees.  Typically, these dividends can be found with utilities.

Ordinary dividend income is added to your other gross income. Following deductions and exemptions, your resulting ‘taxable’ income is taxed at the income tax rate for your filing status. These tax rates have tax brackets that run from 10% to 35% based on how much taxable income you have.

However for 2012, you may be able to tax advantage of a few remaining months of tax relief on most dividends. Tax rates on qualifying dividend income (in addition to net long-term capital gains) may be as little as 0%, based on whether your taxable income tax rate falls below the 25% bracket. The table shows the taxed income for the filing status that places you at the 25% income rate. Beneath that taxable income, your qualified dividends and long-term gains are tax-free; at or above it they are taxed at only 15% (These rates currently continue only through 2012.  Therefore, you should think carefully about selling shares this year that have long term gains or those that may not longer give such attractive taxation).

When do normal dividends turn out to be ‘qualifying’ dividends?

For a stock dividend to be subject to taxes as a certified dividend, you must maintain the stock for more than 60 times during the 121-day time period that starts 60 days before the ex-dividend date. This just prevents you from buying the stock ‘ex-dividend’ when its cost temporarily drops because of the loss dividend. Quite simply, so long as you’re not a short-term investor, your stock returns will likely be qualifying dividends and therefore qualify for the tax relief.  Therefore, as long we you are not involved in short-term trading, almost all dividends are qualifying dividends (not that dividends from REITS and MLPS d not qualify).

Find high-paying stock dividends for your investment income
Preferred stocks and high-dividend paying stock may function as an excellent source of retirement income (not that TRUE preferred stock get the preferential tax treatments but not “pseudo” preferred shares such as TOPRS, MIPS and other “synthetic” preferred shares offered by larger brokerage firms). Keep in mind that stock dividends aren’t as safe as income from fixed income investments. In case you do purchase shares for income, hold them long enough to make their dividends ‘qualifying’. Then pay either no tax or only 15% through 2012.