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Dividends question
Old 08-01-2021, 12:10 AM   #1
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Dividends question

Question to you guys:

https://www.investopedia.com/ask/ans...me-taxable.asp

Based on the article above, If I deicde to quit my job (making $0 income), that puts me in 0% tax bracket. And, if I am receiving $1M dividends annually.

In this case, based on the tax bracket, I don‘t have to pay any tax for the $1M dividends or subject to 20% tax rate? Thanks.
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Old 08-01-2021, 12:28 AM   #2
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You will have $1 mill dividend income and pay 20% tax plus state tax if you have any
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Old 08-01-2021, 01:15 AM   #3
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Originally Posted by captain3d View Post
You will have $1 mill dividend income and pay 20% tax plus state tax if you have any
Plus 3.8 % NIIT on the majority of it.

Assuming married filing jointly with standard deduction and dividends are qualified, I believe your federal tax 2021 would be in the range of $186,000.
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Old 08-01-2021, 05:28 AM   #4
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That's a poorly written article. I can understand how you think that with your regular income being 0, you'd think you'd pay 0 taxes on unlimited income. Unfortunately that's not true. When regular income + dividend income passes $80,800 (married filing jointly for 2021) you start paying taxes on the qualified dividends.

Use a tax program to see for yourself. If you use one where you can see the forms, see how this all works in the Qualified Dividends and Capital Gains worksheet.
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Old 08-01-2021, 06:03 AM   #5
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I've found the link below provides an excellent visual explanation of how taxes / tax brackets work. One drawback is it ignores the additional NIIT tax that kicks in at high income levels.
https://engaging-data.com/tax-brackets/
In your example, the dividends (assuming they are qualified dividends) will be taxed at various levels - 0,15,20%. The amount in each "bucket" depends on filing status.
Note: Net Investment Income Tax will add an additional 3.8% tax on Adjusted Gross Income over 250k for married filing jointly and 200k for single filing (2020 tax rules)
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Old 08-01-2021, 06:35 AM   #6
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Originally Posted by Whisper66 View Post
I've found the link below provides an excellent visual explanation of how taxes / tax brackets work. One drawback is it ignores the additional NIIT tax that kicks in at high income levels.
https://engaging-data.com/tax-brackets/
+1 for this tool

It does a great job of visually explaining tax rates on different types of income.
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Old 08-01-2021, 07:39 AM   #7
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Quote:
Originally Posted by HawaiiShrimp View Post
Question to you guys:

https://www.investopedia.com/ask/ans...me-taxable.asp

Based on the article above, If I deicde to quit my job (making $0 income), that puts me in 0% tax bracket. And, if I am receiving $1M dividends annually.

In this case, based on the tax bracket, I don‘t have to pay any tax for the $1M dividends or subject to 20% tax rate? Thanks.
You do not enter the 0% tax bracket the day after you quit. You and I enter 0% on Jan 1, and things proceed from there.
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Old 08-01-2021, 07:49 AM   #8
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Kitces has a very good (and long) description of how this all works.
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Old 08-01-2021, 08:04 AM   #9
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Simple and straight forward article.

https://www.nerdwallet.com/blog/taxe...dend-tax-rate/
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