Did I say mandatory? I meant optional! You’re “free” to die in a cardboard box under a freeway as a market capitalist scarecrow warning to the other ants so they keep showing up to make us more!
Did I say mandatory? I meant optional! You’re “free” to die in a cardboard box under a freeway as a market capitalist scarecrow warning to the other ants so they keep showing up to make us more!
Are dividends taxed?
“Yes*”
*As with all rules, it can vary by country. As I understand it, the US tends to double tax dividends, which is a rabbit hole of why the US market chases valuation so hard
Dividends paid out to taxable accounts are taxed.
Dividends that pay into non-taxable accounts can accumulate until they are withdrawn.
So, for instance, if you own $100 of Exxon in a regular brokerage account and $100 in an IRA, the $5 dividend you get from the first account is taxable but the $5 from the second is not.
This gets us to the idea of Trusts, Hedge Funds, and other tax-deferred vehicles. If you give $100 to a Hedge fund and it buys a stock in the fund that pays dividends, it never pays you the dividend on the stock so you never have to realize the dividend gain. You simply own “$100 worth of Citadel Investments” which becomes “$105 worth of Citadel Investments” when the dividend arrives.
I think dividends in a tax-exempt accounts, like a traditional IRA, are only not taxed if you reinvest the dividend or just leave it in your brokerage account. If you move money from your IRA account to, say, your checking account, that’s when you pay taxes (and there are generally fees for moving money out of tax exempt accounts without meeting certain conditions, like being of retirement age).
Yes
Not sure if it’s the same everywhere, but if I pull a dividend I don’t pay tax initially, but when I do my income taxes it’s part of my income and I’d have to pay tax on it then
Careful with that. If you’re not making estimated tax payments on your dividends (or other capital gains) every quarter or increasing your withholdings from wages to compensate, and you owe too much at the end of the year, you can get hit with penalties and interest.
For most people the quarterly dividends in their brokerage aren’t enough to trigger that, but as your savings grows and quarterly dividends become significant they might.
Where I’m from, we don’t do that. All dividends come with an “imputation credit,” which basically says “this money’s already been taxed.”