What is the difference between qualified and nonqualified dividends?

What is the difference between qualified and nonqualified dividends?

Qualified dividends are taxed at a lower capital gains tax rate, while nonqualified dividends are taxed as ordinary income.

Can you give me examples of each type of dividend?

Sure! Qualified dividends typically come from stocks held for more than 60 days, like those from U.S. corporations. Nonqualified dividends might come from REITs or certain foreign stocks.

How does the holding period affect the tax rate?

The holding period is crucial; if you hold a stock for less than 60 days, any dividends received are considered nonqualified and taxed at your ordinary income rate.

Are there any exceptions to these rules?

Yes, there are exceptions, such as dividends from certain mutual funds or those that are part of a tax-advantaged account.