Earn Up to $83,350 in Tax-Free Income By Investing in Dividend Stocks in 2022 | Personal-finance
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Standing on the lower end of the income scale has its perks. Although making six figures may sound more glamourous, there are tax benefits that are reserved for those with lower incomes. If you qualify, you may be eligible to earn money from your investments without paying a dime in taxes. This is one benefit attached to buying dividend-paying stocks.
If you’re on the hunt for more tax-free income, dividend stock investing may get you one step closer to your goal. The perks are even sweeter if you are married. Below, we’ll break down the qualifications to skip taxes on your dividend income in 2022.
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Dividends can be your best friend
Dividends don’t always get the praise they deserve, but they can come in handy when you’re looking to earn extra income. Dividends represent the money given to you by companies that reward their shareholders with a portion of their profits.
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Most companies in the United States pay dividends quarterly. Some companies, like real estate investment trusts (REITs), may have a bit more flexibility to give investors a monthly paycheck. You’ll get this extra money on a recurring basis as long as the company declares dividends. Let’s say you own 1,000 shares of company stock. If the company declares a $5.00 per share annual dividend, you will receive $5,000 for the year. That adds up when you have a portfolio of diverse stocks sending you checks every month or quarter.
You don’t have to punch the clock or show up on video conference calls every day to qualify for the extra money. All you have to do is sit back, relax, and meet the holding requirements. The company takes care of the rest.
Qualified dividends are your secret weapon
Although you don’t have to lift a finger to earn dividend income, you may still have to pay taxes. Your bill depends on the type of dividends you have in your portfolio.
If you want to be in the running for tax-free income, you have to load your portfolio up with qualified dividends. This will grant you access to the 0%, 15%, and 20% tax rates. Here are the requirements for a dividend to be qualified:
- The dividend must be paid by a U.S. corporation or a qualified foreign corporation.
- The dividend cannot be considered a capital-gains distribution. It has to be a regular dividend.
- Investors must meet the holding-period requirements. You must own the stock for at least 61 days out of the 121-day period that began 60 days before the ex-dividend date.
After you’ve checked the box on those requirements, you can qualify for the best rates available to stock investors.
Get a deal on your dividends
Earning qualified dividends can be a home run on your tax return, especially if you have a lower income. Depending on your income and filing status, you may be able to bypass taxes altogether.
Here are the income thresholds by filing status for those who want to tap into the 0% tax bracket for qualified dividends in 2022:
- Single filers: Taxable income under $41,676.
- Head of household filers: Taxable income under $55,801.
- Married joint filers: Taxable income under $83,351.
As you can see, married couples who file together can snatch up over $83,000 in tax-free dividends if their income doesn’t tip over the threshold. Let’s say a couple earns a combined $60,000 from their jobs. If they earn $23,000 in qualified dividend income for the year, they won’t have to pay any taxes on the dividend deposits they received. The couple qualifies for the 0% tax bracket.
2022 qualified dividend tax rates
|
For Single Filers With Taxable Income of… |
For Married Joint Filers With Taxable Income of… |
For Heads of Households With Taxable Income of… |
… Is the Qualified Dividends Tax Rate |
|---|---|---|---|
|
$0 to $41,675 |
$0 to $83,350 |
$0 to $55,800 |
0% |
|
$41,676 to $459,750 |
$83,351 to $517,200 |
$55,801 to $488,500 |
15% |
|
Over $459,750 |
Over $517,200 |
Over $488,500 |
20% |
Diversify your portfolio with tax-free dividends
Dividends can play an important role in a portfolio of diverse assets. If your growth stocks are tumbling, you can still enjoy the extra income that comes from dividends. The best part is that the IRS will give you a tax deal if you tap into qualified dividends. This could put you in a lower tax bracket, even the 0% category, if your income meets the thresholds. If you weren’t excited before, now is the chance to consider dividend stocks, so you can earn more money and take advantage of a tax deal that’s too good to pass up.
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