IMPORTANT Difference Between Qualified & Ordinary Dividends!

Knowing the rules and playing by them can get you way ahead financially. Understanding the difference between qualified dividends and ordinary dividends is an essential part of understanding dividends altogether. In this video, I go over everything that you would really need to know about their differences and similarities.
#Dividends #DividendTax #Invest
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[@OnCashFlow]

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[@TradingWithCJ]

Nice breakdown mate! Keep it up! 👊🏼💯

[@OnCashFlow]

Thanks! Will do!

[@kianaburden2226]

Thank you, so easy to understand

[@OnCashFlow]

You are very welcome! Thank you for watching! I'm so glad that it was helpful!

[@maritzaortiz7619]

Thank you this was very helpful!

[@OnCashFlow]

You are very welcome! May I ask what made this video particularly helpful so that I can continue to do so in future videos?

[@arigutman]

Thank you for the content, very interesting !

[@OnCashFlow]

I'm glad it was interesting, thank you for watching!

[@Jewtopia79]

I recently discovered that all dividend stocks can change from qualified to ordinary, and back and forth. An example would be the ETF, SCHD. It started as qualified dividends for many years until about 2 years ago it changed to ordinary (or non-qualified). I spoke with multiple representatives at Charles Schwab who said that there is no guarantee that any stock that is currently paying qualified dividends won't change in the future to ordinary dividends. Is that something you can verify as well? And/or do a video on? Thanks!

[@OnCashFlow]

I'm still working on researching this, give me some time.

[@224dot0dot0dot10]

@@OnCashFlow Are there any ETF's out there with a dividend yield above 3% that pay qualified dividends instead of ordinary dividends? Inflation is above 6% now and every single ETF that I looked at so far only pays "ordinary dividends" and not "qualified dividends".

[@johnmitchell496]

Nice video. Just came across. Can you do a video on k1 tax form regarding dividends

[@OnCashFlow]

Thank you for the positive feedback! Hmm K1 is probably beyond my current knowledge, but I'm always willing to learn! Thank you for the video suggestion!

[@SpeakerBuilder]

I have been pursuing an income investing strategy by purchasing high dividend yielding stocks, and I have discovered that first, I cannot find any source that will accurately tell me if a stock pays a qualified or ordinary dividend. In order to discover this, I have had to purchase small amounts of a stock and then just see on my brokerage account what the dividend type it pays. I also just discovered by doing the math that a mere one percent increase in the dividend yield will compensate for the increased tax burden of an ordinary dividend paying stock when compared to a qualified dividend paying stock with its lower tax burden. With this discovery, I am no longer worried near as much about the type of dividend that a stock pays. But I will continue to place as many ordinary dividend paying stocks in my ROTH account since all earning inside this account are free from any income tax burden.

[@OnCashFlow]

If most of your investments are in retirement accounts then this is not even something to worry about. If you are a buy and hold investor then you will most likely pay very little in tax anyway as well.

[@dizzlefreedom1665]

Hi, I have a question. How are unqualified/Ordinary dividends taxed in Roth IRA? Are the withdrawals tax free just like Qualified Dividend Income?

[@OnCashFlow]

All qualified withdrawals from a Roth IRA are tax free. There are no taxes owed on any dividends paid within a Roth IRA. I hope this helps!

[@dizzlefreedom1665]

@@OnCashFlow Ok, Thank you

[@noel888]

How can one get lower tax rate on Qualified dividends if its included on the 1040 form to be added to the total of ordinary dividends? Back in 2017, Qualified divid. was not added to the adjusted taxable inclome line.

[@OnCashFlow]

I've never done taxes without tax software, and I am certainly no tax expert, but I believe that you would use the "Qualified Dividend and Capital Gains Worksheet" in order to differentiate your dividend tax further down on form 1040.

[@noel888]

@@OnCashFlow I know about the worksheet you mentioned, but the instructions of Schedule D says if you don't need to do Schedule D, then you should do the worksheet. In that case, then where do I have to add my capital gain of last years shares of stock I sold, by not doing "D"? Don't you see the contradiction in that statement?

[@personalandinvestment1405]

Do you pay tax when you pull the money out of your account? Or do you pay the tax each year on the amount that you have in dividends?

[@OnCashFlow]

It depends on what kind of account it's in. If the money is in a retirement account like an IRA or 401k then you only pay tax on withdrawals. In a regular brokerage investment account you would pay taxes when you file your tax return for the dividends you received in that tax year, regardless of if you took the earnings out of the account. I hope this helps clarify!

[@6toolbaseball]

Really wish REITs were qualified

[@OnCashFlow]

I really wish we didn't have taxes at all, but oh well lol

[@marcmarc1967]

Is "Ordinary Dividends" different than "TOTAL Ordinary Dividends" ? On my 1099-DIV, if Total Ordinary Dividends = $700 (1a), and Qualified Dividends = $200 (1b), what do enter in as my Ordinary Dividends on 1040 box 3b? Do I put $500 (700-200) or $700? Thanks.

[@OnCashFlow]

I believe: 1a on your 1099-DIV = 3b on 1040 ($700) and 1b on your 1099-DIV = 3a on 1040 ($200) this is how TurboTax inputs it for me every year. The verbiage is quite confusing, I really do not like it either.

[@marcmarc1967]

Thank you for clarifying, and for helping some random guy on the internets. :) What confused me is that I could never find where you actually use the value entered in line 3a (Qualified Dividends). I finally discovered it buried in a worksheet on page 34 of the 1040 instruction manual where you compute your tax amount. It reduces your tax amount owed based on the value you enter into 3a. Thank God for PDF and my ability to search the 114 page document for "3a".

[@vijjukumar5302]

🙏🙏

[@OnCashFlow]

:) :) :)

[@genzinvesting6561]

This is so important to know Great video New subscriber here Happy to support a fellow finance channel Let's grow together 😀👍

[@OnCashFlow]

Thank you!

[@shawnxiang713]

I am a foreign professional working in Japan, and I started to invest in the US market. I am wondering if I will be taxed on the re-invested dividends?

[@OnCashFlow]

I believe the answer heavily depends on several other factors. Are you a U.S. citizen/resident/etc. working abroad in Japan? If so you might qualify for the foreign earned income exclusion. www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion

[@shawnxiang713]

@@OnCashFlow Hello Zach. Thank you so much for the response. I am from Japan trying to investing in the states. I just want to invest in passive indexing funds, so tax on dividends will be an important factor for me to choose either investing in Japan or US. Wondering if you have anything info on that? Thank you so much for your help!!

[@OnCashFlow]

@@shawnxiang713 Always happy to try and help! As far as I know, you can invest in U.S. securities, and you will only be subject to taxation in Japan if you are not affiliated as a citizen/resident/etc. within the U.S. p.s. I love Japan!

[@shawnxiang713]

@@OnCashFlow Hello Zack. Thank you so much for your help and all those amazing videos! It helps a lot. I want to invest in the US to avoid all the extra cost in management fees, but I will search more before I put more money into the equity market.

[@shawnxiang713]

@@OnCashFlow Many American expats are here in my team. I think they all enjoy the food and culture very much. Maybe you can look into those international assignment lol

[@remy9536]

I'm very confuse, maybe you can help with the explanation. Is Ordinary Dividend + Qualified Dividend = the total dividend you received for that full year? Last year my total dividend was 420. On the 1099, it showed my Ordinary is 419 and the Qualified is 340. That adds up to 759, but I only received 420 in total...why isn't the number add up?

[@OnCashFlow]

on 1099-DIV your box 1a is 'total ordinary dividends" which is all of the dividends you received, which is your 419. Box 1b is your "qualified dividends" which is the portion of your dividends that are qualified. So for you that would be 340. So 340 should be taxed at the qualified dividend rate, and the remainder (419-340=79) 79 should be taxed at the regular federal income tax rate. I hope this helps!

[@remy9536]

@@OnCashFlow Ah, thanks for the clarification.

[@OnCashFlow]

@@remy9536 Anytime! I'm happy to help!

[@kylekoentje5720]

Dude - you just breezed over the holding period assuming everyone is a buy and hold investor. This is a HUGE part of what makes a divided qualified. Would think it deserves an explanation. Did I miss it???

[@OnCashFlow]

I'm sorry If I breezed over the holding period. My target audience is buy and hold investors. It is a very important component of getting qualified dividends to have a proper holding period. I mention the holding period at 4:45 but don't explain what it was, so I apologize for that. This is an early video of mine and I have (hopefully) gotten a lot better at producing videos since then. Please give me a second chance.

[@1966bluemax]

My marginal rate is 24% so I guess I save 4%

[@OnCashFlow]

If your marginal tax rate is 24% then your qualified dividend rate should be 15% I believe. 0% -> 15% -> 20% for LT capital gains and qualified dividends.