qualified dividend
A dividend that meets IRS requirements to be taxed at the lower long-term capital gains rate rather than as ordinary income, requiring the stock be held for at least 60 days.
Example
“By holding the dividend stock for over 60 days, her dividends were qualified — taxed at 15% instead of her 32% income rate.”
Memory Tip
QUALIFIED dividend = taxed at capital gains rates, not income rates. Must hold 60+ days.
Why It Matters
Qualified dividends can significantly reduce your tax bill because they are taxed at capital gains rates (0%, 15%, or 20%) instead of ordinary income rates (up to 37%), making them much more favorable for investors. Understanding which dividends qualify helps you make better decisions about which stocks to buy and when to sell them.
Common Misconception
Many people assume all dividends are automatically taxed at the lower capital gains rate, but this is incorrect. Dividends only receive preferential tax treatment if you meet the holding period requirement and other IRS criteria, otherwise they are taxed as ordinary income at your regular tax rate.
In Practice
If you buy 100 shares of a company stock at $50 per share and receive $2 per share in annual dividends totaling $200, that $200 qualifies for the 15% capital gains rate if you held the stock for at least 60 days. This means you would owe $30 in taxes on those dividends, whereas ordinary dividend income at a 24% tax bracket would cost $48, saving you $18.
Etymology
QUALIFIED (meeting specific requirements) DIVIDEND. A DIVIDEND that is QUALIFIED for lower tax treatment.
Common Misspellings
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