taxes on dividend Archive
Two Dos and Three Don’ts for the Coming Dividend Tax Hike
by Marc Lichtenfeld, Investment U Senior Analyst
Wednesday, December 12, 2012: Issue #1924
Like a lot of kids, when I was little, I was afraid of monsters under the bed.
Fortunately, I quickly realized that there were in fact no monsters and my fears shifted to what would happen when my Mom realized I hadn’t cleaned up my room after she asked me for the umpteenth time.
Just like the national media that preys on your fears, there are a lot of bloggers and financial writers who are trying to scare you into freaking out over the looming dividend tax increases.
Among the most commonly used scare tactics is scaring investors into believing that a higher tax rate means their dividend stocks will tank.
Perhaps the initial knee-jerk reaction will be to send those stocks lower. But as I’ve been shouting from the rooftops lately and in the national media, there is no correlation whatsoever between higher taxes and lower returns in the stock market, and particularly dividend-paying stocks.
If anything, what we might see is lower dividend growth next year by companies that have announced special dividends or pushed their dividend raises up in order to get them in under the 2012 tax year and the 15% rate.
It remains to be seen whether the agreement between the President and lawmakers will return dividend taxes to ordinary income rates or a simple flat rate. My prediction is dividend taxes will be capped at 30%. We should have more information over the coming weeks.
The other scare tactic by media and bloggers is constantly mentioning the 43.4% potential top tax rate on dividends. As I discussed in last week’s column where I pretended to interview the President, even if the rate goes up to 43.4%, that’s not an automatic 43.4% haircut to an investor’s take-home amount.
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