These are great questions and they come at just the right time. Many investors are beginning to look at how much they've earned through the year and are trying to get a ballpark figure of what they'll owe in taxes. I hate this time of year. I love earning dividends, but when it comes time to pay those taxes, my mood changes. Be that as it may.
Okay, so your first question was, how long do I have to wait until my dividend is qualified? The answer to that is, for common stock, 60 days and for preferred stock, 90 days, in general. If you're a semi-long term to long term investor, this wait time is virtually nothing. You'll get nabbed for at least one dividend that's ordinary though, but thems are the breaks. Also, in order to "qualify" for the qualified dividend tax rate, you'll need to own U.S. stocks or stocks that have connections to the U.S. in some way.
More specifically, if you own the stock or stocks for a longer period of time than 60 days during the 121 day period that begins 60 days before the ex-dividend date, you'll have a qualified dividend. Otherwise, it'll be an ordinary dividend. Try making sense of that!
Your second and third questions have to do with tax rates. With rates, things vary somewhat. First, if you've got ordinary dividends, it's easy. Those dividends will be taxed at your normal tax rate. The thing is, even then, the taxes aren't that bad because this type of income isn't considered "wage income" or income from actually working. They're not subject to FICA taxes, which can be substantial. So basically, dividends, interest income, and capital gains are exempt from FICA taxes.
When it comes to the actual rates, for qualified dividends, they are 0%, 15%, and 20%. These depend on your filing status and taxable income levels. The more you earn, the more you pay in taxes.
What are the dividend tax rates for 2020? Here they are. If you make between a certain amount, you pay a certain rate:
$0 - $40,000 - 0%
$40,001 - $441,550 - 15%
$441,451 or more - 20%
What's very cool is that if you have no job and only make dividend income and make less than $40,000 per year, you pay no taxes. That's a very appealing reason to get into dividend investing.
