some good news… January 4, 2013

| Friday, January 4th, 2013 | Comments Off on some good news… January 4, 2013

Somewhat buried beneath the surface of the highly imperfect fiscal cliff package voted on this week was some good news for dividend investors. Dividend tax rates for individuals making less than $400,000 per year and households earning less than $450,000 remain at 15%, while those making over those amounts will be taxed at 20%. Even considering the higher 20% number, there are some significant positives to take.  First of all, this rate is now permanent (meaning not set to expire), making it likely to be in effect for some time and at a significantly lower level than many believed would be adopted.   Secondly, this rate is low by historical standards, as dividend taxes have been higher than 20% in 42 of the last 51 years, and for those that pay 15% this remains the single lowest rate dividends have been taxed in at least a half century.  Finally, this tax rate is equivalent with the capital gains tax and the level playing field between the two should have positive ramifications for dividend investors as corporate management decides how to allocate cash flows.  For many years before 2003 capital gains had preferential treatment to dividends but that temporarily ended with the Bush tax cuts that were set to expire on New Years Eve.  Wisely this level playing field was made a permanent feature.

– The above tax rates exclude a new 3.8% surtax on investment income as a result of ObamaCare subsidies for private health insurance and expansion of Medicaid. This looks to impact individuals making more than $200,000 a year or couples with $250,000 or more, and applies to all forms of income from investments, apparently even including profits from a home sale.

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