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How to Pay Zero Tax on Dividends and Capital Gains


Fortunately under the new tax code the thresholds remain to qualify for zero tax on qualified dividends and capital gains.  Taxpayers who are in the old 10% and 15% tax brackets are the beneficiaries of this little wrinkle of the tax code and the good news is that it survived!  If your taxable income is under $38,600 for individuals and $77,200 for couples, you qualify for 0% tax on qualified dividends and capital gains.  However, its important to note that these income levels are different than the new 10% and 12% tax brackets.  They follow the old schedule just to confuse you!

Qualified dividends are generally paid by US companies.  This is why good tax location planning will put US stocks/funds in your NON retirement account.  Who doesn’t want a tax free dividend.  And, if you sell a security and realize a gain, it too is tax free!  The transition to the 20% rate for capital gains occurs at income levels of $425,800 for singles and $479,000 for married couples.  Plus, the 3.8% medicare tax on net investment income survived for taxpayers with AGI north of $200,000 for singles and $250,000 for married.

Good tax location planning is a very important part of the overall wealth management process.



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