Question

Alex knows that cash dividends are taxable in general. But when he received stock dividends, he was wondering if the stock dividend is taxable, because he didn't really receive anything other than the stock certificate which only means a piece of paper to him. He wishes to consult you on whether his stock dividend is taxable. How would you answer and what are the questions you may ask Alex, if any, for your accurate and proper consultation?

Answer 1

Answer -

Taxability of dividend

Majorly we are aware about two kinds of dividend, first one is cash dividend and second one is known as stock dividend. First and foremost question needs to be asked if dividend is qualified dividend or non-qualified dividend.

Generally speaking most of dividend are non-qualified dividend, taxable at ordinary income are normal rate of income tax.

Talking about qualified dividend, pls note that this kind of dividend is taxed in capital gains at a lower rate, refer to IRS guidelines for more knowledge about conditions to satisfy for qualifying dividend.

Cash dividend in case categorized as qualified one, is taxable as capital gains at lower percentage.

If stock dividend is paid in lieu of cash, in that case it will be taxable as the ordinary cash dividend.

If stock is kept in retirement account rather than brokerage account then these dividend are not taxed. If the same is kept in non retirement account, then as mentioned above its classification has be decided, as qualified or non qualified, according it will as treated as mentioned above.