Gyroscopic Investing

MachineGhost wrote:

These calculations don't make sense to me. A corp is taxed on profits whether they retain it or pay it out in dividends so the 35% federal + 8.84% CA tax are going to happen no matter what.

As long as you hold the Apple stock for a certain period of time, that ordinary dividend becomes qualified and this hypothetical highest tax bracket person pays 23.8% federal and 13.3% to the state, same as long term capital gains rates if one were to sell the stock.

MangoMan wrote:Stock dividends don't become qualified by length of holding period. That status is determined by IRS rules relating to the source of the dividend.

I was just referring to the specific Apple example. Their dividends qualify or at least they have up to this point. For an individual investor you need to hold the stock for a 60-day period within a 121-day period before and after the ex-div date to qualify.

Still forking over at least a minimum 43.84%+ of your shareholder earnings to the bumbling idiotic government. Outrageous! We need to eliminate the corporate tax once and for all.

The thing about dividends is you can avoid even further taxes by not buying any dividend paying stocks. So you're not forced to pay capital gains tax rates at best from not even selling.

Bogleheads are of course mostly anti-dividend, especially Larry Swedroe whom I find to be highly intelligent. I just like having some dividends. They are the comfort food of investing, and they help prevent me from selling.

iwealth wrote:

MangoMan wrote:Stock dividends don't become qualified by length of holding period. That status is determined by IRS rules relating to the source of the dividend.

I was just referring to the specific Apple example. Their dividends qualify or at least they have up to this point. For an individual investor you need to hold the stock for a 60-day period within a 121-day period before and after the ex-div date to qualify.

I know the iwealth part (holding time), but was completely unaware of the MangoMan part (IRS rules) until my accountant told me last year.

dualstow wrote:Bogleheads are of course mostly anti-dividend, especially Larry Swedroe whom I find to be highly intelligent. I just like having some dividends. They are the comfort food of investing, and they help prevent me from selling.

Two peas in a pod!

Left unsold, though, is how the corporate buybacks are incurring permanent loss of capital by buying back obscenely overvalued stock. I don't see how you can avoid that compared to dividends.

keep in mind as little as a 1% dividend distribution can wipe out any tax advantage over the long term if held in a brokerage account so you can get the tax advantaged rates . unless you are in the zero percent bracket it can be a poor tax move trying to capture those lower tax rates in a brokerage account instead of a retirement account .

but it gets worse than that . even index funds can have turnover since many just try to mimic an index without buying everything in the index . some s&p 500 funds can be terrible in turnover so that too destroys the effect of the lower capital gain rates you think you are getting .

one other big negative to dividends is you are taxed on the entire dividend . if you create your own dividend by just selling equal dollars off from your portfolio which would amount to the same thing as the dividend , you are only taxed on the gains , not the entire payment like a dividend is .

that being said i like the ease of the cash flow from dividends but that is about all i can say about them . the loss of control of your taxation with them can create some nasty situations in retirement .

so much is linked to taxable income in retirement that controlling the flow of the income stream at times can be important .

mathjak107 wrote:keep in mind as little as a 1% dividend distribution can wipe out any tax advantage over the long term if held in a brokerage account so you can get the tax advantaged rates
...
one other big negative to dividends is you are taxed on the entire dividend

Old thread, but you've lured me in if only to say, I don't have to pay taxes on dividends. At least not with the accountant I've had for the past several years, and no he's not a crook.

I think it's because my non-investment income isn't high. While I'm not in the "0% bracket", I may as well be. Ordinary income is another story.

the zero capital gains bracket is a gift from the tax gods . unfortunately i learned what i needed to know about retirement planning to late . so my tax planning until later in life sucked . now in retirement my taxable income is to high to take advantage .

had i done roths i would have been in better shape . there is so much linked to your magi in retirement that roths can be so much better even if tax rates were a bit higher

mathjak107 wrote:the zero capital gains bracket is a gift from the tax gods . unfortunately i learned what i needed to
had i done roths i would have been in better shape . there is so much linked to your magi in retirement that roths can be so much better even if tax rates were a bit higher

Can you elaborate on this? I am currently young (20's) and investing primarily in Trad. accounts (IRA, 401k) since my tax bracket is high. Is there more to the equation than current vs. future tax bracket?

everything from what you pay for medicare premiums to getting your social security taxed is tied in to your taxable income .

there can be aca subsidy's if pre medicare age and they are still around as well as surcharges too. then you have rmd's to deal with .

a spouse who loses a spouse not only loses a social security check but they have to take the required minimum distributions too and file single . that can be very painful . so roths can help a lot

Top 5 Myths About Dividend Investing

1. Stock prices adjust downward when dividends are paid
2. Dividend stocks are always safe
3. Companies that pay dividends limit growth
4. Dividends are always taxed the same
5. Dividends are guaranteed