Course 201: Stocks and Taxes
Jobs & Growth Tax Relief Reconciliation Act of 2003
In this course
1 Introduction
2 Ordinary Income Versus Capital Gains
3 Jobs & Growth Tax Relief Reconciliation Act of 2003
4 Tax-Advantaged Accounts
5 Tax Planning 101
6 The Bottom Line

Most taxpayers pay a 15% rate on both dividends and long-term capital gains--the same level has been in place since 2003, when the Jobs & Growth Tax Relief Reconciliation Act was passed. (Beginning in 2013, investment taxes did go up for high-income earners: Single taxpayers earning more than $400,000 and married couples filing jointly earning more than $450,000 pay a 20% tax rate on dividends and long-term capital gains.)

Prior to 2003, dividends were taxed at an investor's ordinary income-tax rate. The basic idea behind the 2003 dividend tax cut was to reduce the burden of "double taxation," or taxation of the same profits at both the corporate and shareholder level, so any dividends paid out of profits not subject to corporate taxation will not be considered "qualified dividends" eligible for the reduced tax rate. Therefore, one notable exception is dividends from real estate investment trusts, or REITs, which are typically still taxed at ordinary income rates. In addition, to qualify for the reduced dividend tax rate, you must have held a stock for at least 60 days out of the 120-day period beginning 60 days before the ex-dividend date (the date on which you must be holding a stock to receive the dividend).

Next: Tax-Advantaged Accounts >>

Print Lesson |Feedback | Digg! digg it
Learn how to invest like a pro with Morningstar’s Investment Workbooks (John Wiley & Sons, 2004, 2005), available at online bookstores.
Copyright 2015 Morningstar, Inc. All rights reserved. Please read our Privacy Policy.
If you have questions or comments please contact Morningstar.