Question

What is the difference between qualified dividends and ordinary dividends and how are each reported through the tax process? Give an example of each. Post your response in complete sentences here to receive full credit. Give details to support your answer.

Answer 1

Qualified dividend and ordinary dividend are different in terms of tax rate i.e., qualified dividends are eligible for taxation at a lower rate while ordinary dividends are taxed as ordinary income.

Qualified dividends are those who qualify to be taxed at a lower rate than ordinary dividends. Ordinary dividends are the distribution from a corporation or a mutual fund.

Qualified dividends criteria :

The criteria is described by the income tax which has two components that are the company should have U.S. ties and the recipient is an investor shareholder rather than a speculator. Also, holding period for qualified dividend is you must have held the stock for more than 60 days.

Tax rate for both the dividends are - Ordinary dividends tax rate starts from 10% from starting slab and Qualified dividends tax rate is 0 at first.