Thursday, January 3, 2013

No New Taxes! ... For Most of Us

If you haven't yet sifted through all the noise and political B.S. about the recently agreed upon "Fiscal Cliff" deal you may have missed some fantastic news for dividends. The taxes on dividends did not increase as much as expected, and for many of us not at all!

The new deal permanently sets the top tax rate for dividend (and capital gains) at 20% for couples earning more than $450,000 ($400,000 for single filers). For anyone earning below this, dividends and capital gains will continue to be taxed at the current rates. So many of us will continue to pay 15% on dividend income. This is way better than I had expected.

This means that dividend income will continue to be one of the lowest taxed sources of income. Investors who previously dumped dividend paying stocks before the end of the year will likely be jumping back in. This may cause a temporary bubble in the prices of some dividend stocks, but I fully expect the upcoming debt ceiling bickering to create another buying opportunity.

I couldn't be happier with this decision. Of course, this development still has no bearing on my Roth IRA. I continue to get paid tax free income in my Roth and reinvesting those tax free payments into more shares, creating the beautiful compounding affect that is going to allow me to retire in style. Tax season is coming up, so when you see that large sum of cash going to Uncle Sam remember that there is a way around it.

Speaking of my Roth, I just made a recent buy in my account.  Its an early dividend payer that I feel could become a dividend growth star over time. I'm putting together an article on it now and plan to publish it early next week.

Related Articles: Roth IRA + Dividend Stocks = Awesome!

No comments:

Post a Comment