Can somebody explain dividends and taxes a bit please (mutual funds, puts, cash)

[marlinfshr]

Finally getting my taxes figured out which shouldn't be too complicated. i got my 1099-DIV from Trowe and started to punch those figures in. I only recieved one for 2 of my 4 mutual funds.

Well, I decided to take the easy way and import them through the H&R block program and all 4 accounts came up. No problem. It showed total dividends last year were 1600.00. Then my tax owed amount went up 999.00.

The way I read it is that for 1600 in dividends which went right back into my accounts, I have to pay taxes of 999.00? That is redicules! 1000 in taxes I have to pay for accounts totaling about 20 grand which are lower now then they were Jan 1st 2015. When did dividends start getting taxed at 75%? Or am I misunderstanding something.

If this is correct I'm withdrawing it all next week and putting it in a savings account for a whopping .0000000000000001%! I'll be better off.

Does this sound right? I'm not getting put into a higher bracket as my only income is disability, my wifes part time employment and a little bit from boat detailing.

Playing around with the program, I'd take them out and increase my self employment income by 1600 and the taxes don't go up that much. Put my self employment income back to where it should be and re-import my Trowe accounts and up again 1000 bucks.

Does this make any sense at all? I understand I should pay for capital gains and can see dividends as well but close to 75%? To me that sounds redicules. For Christ sake, together we made about 35 grand last year and I have to pay 1000 dollars for 20,000 in mutual funds which I've had for years! !000 in tax for 1600 in dividends. I'd be much better off in cash under my pillow!

Please, before I cut a check to Uncle Sam, does this sound right?

[mathjak107]

without knowing your total tax situation and knowing whether the dividends were qualified or not no one can say .

it sounds like you may have qualified for some tax perks and went over the limit and has nothing to do with just the dividends .

qualified dividends are taxed from zero to 20% plus a 4% surcharge depending on income .. your 35k income is in the zero capital gains bracket so something is not adding up here

[marlinfshr]

As far as the limit, that is why I was playing around with numbers and with the same amount as just income my taxes are less. But when I readjust to actual amounts with my div's the taxes go up 999 every time. I know as income and everything increases so do taxes but married, filing jointly making 35 grand? That's well below the next bracket! Just seems high! makes me wonder if the H&R block software is only designed for upper earners? It just doesn't add up! Very confused as to what to do.

[mathjak107]

35k is zero capital gains so you have to look at schedule d and what was on your 1099 div and 1099-int to see what is going on .

tell us what that shows . even if they were unqualified dividends you are talking 15% in your bracket .

there is more to this then meets the eye.

there is no such thing as tax software for upper income earners . tax software is what it is regardless but there is more going on here .

[J.Thomas]

Relax!

Uncle Sam just wanted to tax you a little bit.

Aren't dividends income already??

[mathjak107]

huh ? what are you talking about . dividends are taxable income . whether you have to pay taxes on it is just a question of whether you are in the zero capital gains bracket and if the divs are qualified or not for long term capital gain rates .

https://www.kitces.com/blog/understa...p-up-in-basis/

[J.Thomas]

Though i did not know one would pay massive taxes.

Let's say you make $50K income from $1M how much you're gonna pay??

[mathjak107]

that is not how it works . it is about the income bracket you are in from everything you earn or receive . it is just another chunk of income and how it is taxed depends on many things .
first the dividends have to be qualified for special rates . then you have to meet certain conditions of ownership to get those rates . then if you are in the 15% bracket with the dividends there is zero tax . if not then it can vary from 15% to 24% .

large gains can trigger amt taxes so it is impossible to say . it has zero to do with the portfolio value .

[J.Thomas]

Well this is interesting!

Then how does Warren Buffett do it??

These guys are collecting billions of dollars.

Shouldn't they pay massive taxes??

How do they dodge this??

[mathjak107]

there is no dodging it . you pay on what you receive . don't confuse a corporation's income tax vs your personal income tax . you can't dodge it anymore then you can dodge your w2 income . it is what it is .

in fact personally you can get the lower capital gains rates but if the gain is high enough it takes you off the conventional tax system and puts you on an alternative tax system called the amt . it can be very painful and once phase outs are hit it is almost a flat tax from dollar 1 with no exemptions and few deductions allowed .

which is why i tell you all the time , your opinions many times are based only on bits and pieces of information and are not the complete picture . you don't have enough knowledge yet about many things to really have comments or opinions on the subject . you are drawing conclusions based on partial information or what you hear from other mis-informed folks .