Question

Select the correct answer from each drop-down menu. Complete the statement about taxes on dividends. Dividends that are __________ are taxed the same as short-term capital gains, which is _________ the investor’s marginal tax rate.

Answer 1

Answer:

Dividends that are ___ordinary_______ are taxed the same as short-term capital gains, which is __higher than_______ the investor’s marginal tax rate.

Step-by-step explanation:

As an investor in the US, your dividends may be qualified dividends or unqualified or ordinary dividends and they attract different taxes. The tax rate on ordinary dividends are the same for ordinary income.  On the other hand, qualified dividends are taxed at the lower capital gains rate.  The source of the dividends determines the classification.  Dividends received from an American company or qualified foreign company, if held for the required holding period, are regarded as qualified while all others are regarded as ordinary.  The periods are 60 days for common stock and mutual trust and 90 days for preference stock.