Essay --

Dividend News for 2013 When the budget deal was agreed upon for the beginning of the year, this included rates on dividends. Qualified dividends, including capital gains, for individuals in the 25%, 28%, 33%, and 35% income tax brackets will continue to be taxed at 15%. Individuals making more than $400,000 in taxable income or couples making more than $450,000 will see their rate rise to 20%. Individuals in the 10% and 15% brackets as before will have a zero tax rate. Charles Farrell, chief executive of Northstar Investment Advisors LLC had stated that these tax rates for this year were pretty consistent. If they had been higher, investors probably would have been favoring non-income producing assets. Although, taxes on dividends will continue to rise for individuals making incomes above $200,000 or families making income above $250,000 due to the new Medicare tax (Ruffenach, 2013). The Patient Protection and Affordable Care Act of 2010 increased tax rates in 2013 for upper bracket taxpayers by 3.8% (Eyde n, 2013). This 3.8% tax applies to net investment returns which covers capital gains, interest, certain annuities, and dividends. So, many families will pay around 18.8% which includes 15% plus 3.8%, plus state taxes. For others who are the high wage earners will pay tax on dividends around 23.8% which includes 20% plus 3.8%. About 80% of companies in the S&P 500 pay dividends. Some of these companies include Exxon, IBM, Apple, Chevron, and Procter & Gamble (Ruffenach, 2013). Dividends are crucial to long term returns. Looking back on the past 100 years, dividends accounted for about 50% of an investor’s total return. The other 50% is from price appreciation or capital gains. If an investor were to cut dividends out of their por... ... 2013). The Bottom Line The dividend tax rate discussion continues to be an argument in board rooms, think tanks, and in Washington (Flannelly, 2013). There has been much controversy whether or not dividends and capital gains should receive preferential tax treatment. The rates of taxation on dividends and capital gains have always been progressive, perhaps for the fairness of the overall economy (Eyden, 2013). As an individual investor, it does not matter what dividend tax rates are, because attractive returns can be realized. Although there is some clarity to the short term future of dividend tax rates, it will be a surety that this will change sometime down the road. With a discussion about the history, the news, the theory, and data about dividend tax rates, this can help with some uncertainty and insight of dividend taxes (Flannelly, 2013).