Taxable Dividends?

[rjordan392]

What is the name of your state (only U.S. law)?
Pennsylvania.
Are dividends taxable if the principal is the same as the original investment at year end?

 

[FlyingRon]

True dividends are taxable (at least for the last couple of years) as ordinary income. The only time they are treated differently is if rather than being a dividend (i.e., an earnings distribution from the company) the payment is return in some form of the principal investment. From your description it sounds like this is specifically NOT the case.

 

[adjusterjack]

What is the name of your state (only U.S. law)?
Pennsylvania.
Are dividends taxable if the principal is the same as the original investment at year end?

It's not clear what happened but let me give you one example of how that can work.

If you bought $10,000 worth of stock at the beginning of the year and were paid $1000 in dividends during the year the dividends would be taxable.

If the value of the stock dropped to $9000 by the end of the year your account would still be valued at $10,000 but you would still pay the tax on the dividends unless you sold the stock at a loss before the end of the year.

Then you could write off the capital loss of $1000 against the earnings of $1000 and pay no tax.

Now you can explain your situation.

 

[LdiJ]

It's not clear what happened but let me give you one example of how that can work.

If you bought $10,000 worth of stock at the beginning of the year and were paid $1000 in dividends during the year the dividends would be taxable.

If the value of the stock dropped to $9000 by the end of the year your account would still be valued at $10,000 but you would still pay the tax on the dividends unless you sold the stock at a loss before the end of the year.

Then you could write off the capital loss of $1000 against the earnings of $1000 and pay no tax.

Now you can explain your situation.

That is not exactly right, its very close, but its not exactly right. Capital losses have a limitation if there are no capital gains to deduct them against. In your scenario the numbers work, but only because you described a capital loss of less than 3000.00. If there is a capital loss of greater than 3000.00 only 3000.00 of the loss may be taken against ordinary income, with the remainder carried forward taking 3000.00 per year until its used up.

Again, however, that only applies to realized losses. He would have to liquidate the investment account in order to realize the loss.

 

[rjordan392]

Thanks to all and LdiJ.
I do not have the scenario as LdiJ explained so far this year. The question was posted to increase my knowledge of taxable dividends.

 

[davew128]

Ok, let me simplify. A dividend is taxable regardless of what you do or with the stock or what the value of it is.