Author Topic: Are Q. Dividends Taxed first, or Normal Income taxed first?  (Read 1068 times)

andysandp

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Are Q. Dividends Taxed first, or Normal Income taxed first?
« on: April 14, 2018, 10:01:59 AM »
Let's say your single and you make:

$91,900 in Qualified Dividends.

Let's say you make $9325 in Regular Income (after all Deductions.)

Both of these Incomes are Taxed at different rates.   How do you figure out the rates?

Does the $9325 Regular Income get taxed first and use a 10% Tax Rate?

Or since Total Income is $101,225, you use the 28% Tax Bracket,  so then the $9325 Regular Income is taxed at the 28% Rate?

I know the Qualified Dividends will be Taxed at a lower Rate.

Can anyone clarify?

Thanks!




seattlecyclone

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Re: Are Q. Dividends Taxed first, or Normal Income taxed first?
« Reply #1 on: April 14, 2018, 10:58:27 AM »
The regular income is taxed first as if the qualified dividends didn't exist. Then the dividends and capital gains are taxed based on your overall total income.

Paul der Krake

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Re: Are Q. Dividends Taxed first, or Normal Income taxed first?
« Reply #2 on: April 14, 2018, 11:25:58 AM »
If you want to see how it's all done, take a look at page 44 of the 1040 instructions, "Qualified Dividends and Capital Gain Tax Worksheet—Line 44".

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

SeattleCPA

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Re: Are Q. Dividends Taxed first, or Normal Income taxed first?
« Reply #3 on: April 15, 2018, 06:54:43 AM »
To be even more general, income is sheltered by deductions and then "poured" into tax brackets tax buckets in the way that means taxpayer pays the lowest amount of income tax.

E.g., your ordinary income is first sheltered by deductions... then poured into the lowest rate bracket, etc.

This blog post I did about a year ago walks you though the math and logic.

https://evergreensmallbusiness.com/income-tax-buckets-not-income-tax-brackets/