Get Rich with Dividends, 2nd Edition

CHAPTER 12 Taxes

I was hesitant to write this chapter. In fact, I didn't even include it in the table of contents in the proposal to my publisher. I despise how complicated taxes can be. It's why this chapter wasn't in my original plans for the book. However, taxes are an important issue that needs to be addressed.

Keep in mind that I am not a tax expert. I will cover only the basics of tax law as it pertains to dividends. If you have any questions, you should always seek the advice of a tax professional.

Here's what you need to know:

Dividend tax rate = 15%

That's it. Any questions?

Okay, it's a little more complex than that.

In 2014, most Americans will pay 15% on dividends held in taxable accounts. Note, if your dividends are in a tax-deferred account, like a 401(k) or an individual retirement account (IRA), you will not pay taxes on the dividends for the year in which they were received. You may pay taxes on them when you withdraw the funds in the future.

That's been the case since 2003, when President Bush signed the Jobs and Growth Tax Reconciliation Relief Act. In 2010, President Obama extended the tax cuts that set the dividend tax rate at 15%.

If the tax cuts expire, it is expected that dividends will be taxed at the individual's ordinary income tax rate. Of course, in politics, anything can happen, and tax policy may change considerably by the time you read this.

But if you're reading this just when it was published because you ran to the bookstore or ordered it online ...