How to Determine Qualified Dividends

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Taxes are paid on most items purchased, from your clothes to your food to the property your house is built on. Taxes must also be paid on all income earned, though there are lower rates for certain types of investment income. One type of qualifying investment income is referred to as a qualified dividend by the Internal Revenue Service (IRS). The challenge can be determining which dividends qualify for the lower "qualified" rate. According to the IRS, there are three criteria.

Determine the home country for the company that paid the dividend. If the dividend was paid by a qualifying foreign company or an American company, the dividends qualify for the lower tax rate. See IRS Publication 17 for the most recent list of qualified foreign companies.

Determine if the dividends are paid on deposits with a bank. If so, these dividends must be accounted for as interest.

Determine if the dividends are paid from a tax-exempt organization. These dividends are not considered qualified dividends.

Determine if the dividends are paid by an employee stock ownership plan issued by the employer. These dividends do not qualify for the lower tax rate.

Determine the number of days you held the stock. You must hold the stock for more than 60 days during the 121-day period that begins 60 days before the "ex-dividend" date for the dividend to be qualified. The ex-dividend date is the date the seller of the dividend begins to receive the dividend.

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About the Author

James Collins has worked as a freelance writer since 2005. His work appears online, focusing on business and financial topics. He holds a Bachelor of Science in horticulture science from Pennsylvania State University.

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