Dividends question

[HawaiiShrimp]

Question to you guys:

https://www.investopedia.com/ask/answers/090415/dividend-income-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.

 

[captain3d]

You will have $1 mill dividend income and pay 20% tax plus state tax if you have any

 

[Scratchy]

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.

 

[RunningBum]

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.

 

[Whisper66]

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)

 

[mrfeh]

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.

 

[target2019]

Question to you guys:

https://www.investopedia.com/ask/answers/090415/dividend-income-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.

 

[clobber]

Kitces has a very good (and long) description of how this all works.

 

[bobandsherry]

Simple and straight forward article.

https://www.nerdwallet.com/blog/taxes/dividend-tax-rate/