Taxpayers Save Thousands A Year with This Overlooked Tax Break
Taxpayers can save thousands of dollars every year with a tax break that is all too often overlooked. Anyone who has missed out in the past is going to want to take advantage of this.
Only 1 in 6 taxpayers use it. It doesn’t take a lot of work, and it gives you a great return by increasing your tax credits. By generating income from stocks that pay you qualified dividends, you’ll benefit from the low taxes on this type of income and you’ll join the 25 million taxpayers who earn tax savings this way.
It’s inspiring when you look at data from actual tax returns. The average amount that was claimed by tax payers who reported qualified dividend income was $7,488 per return!
What kind of tax break can you get from qualified dividends?
A number of years ago, dividends were taxed like interest or other investment income. Taxpayers paid the same tax rate on this type of income as they did on salaries and other income. However, favorable new tax laws were put in place that reduced tax rates from what the taxpayers with the highest incomes were paying, which was almost 40 percent. With today’s law, the tax rate for dividends is dependent on the regular income tax rate, which is based on your tax bracket. For the average taxpayer, this meant a drop by 10 to 20 percent from what they had been paying on their dividend income, which can result in thousands of dollars a year in savings.
For example, an income tax rate of 39.6% means you pay 20% on dividends. If your rate for other income falls between 25% and 35%, you pay 15% on dividends. You don’t even have a tax rate on dividends if your regular tax rate is 10% or 15%.
These lower rates make it worth pursuing qualified dividend income. The tax plan reform recently released by the White House will make qualified dividend rates even more attractive given the reduction of tax brackets.
Why Consider Qualified Dividend Income?
Once you see the lower tax rates on dividend income, you may be interested in looking into this type of investment. Moreover, choosing stocks as part of your investment strategy is a smart move anyway. Stocks that pay qualified dividend income normally deliver outstanding long term results to their shareholders, and can significantly increase their wealth.
While qualified dividends have become more popular, there are still a lot of people who aren’t aware of the advantages of this investment option. Now that you know about the tax break, you have even more incentive to take this path to help you increase your personal wealth.
If you’re paying taxes, you should check if you are eligible for these tax credits
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