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There are two different types of regular dividends, qualified and unqualified. Knowing the difference between the two is a big deal for investors around tax time as the tax implications can affect the maximum return on investment.

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Qualified vs. Unqualified Dividends

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For the most part, investors need not worry about the differences between qualified and unqualified dividend as most regular dividends from corporations are indeed qualified. However, when it comes to investing, an individual should always be aware of the tax implications that might affect potential returns. Here at we try to assist investors by indicating whether a company's dividend is qualified or not on the individual company's company profile. To have a clear understanding of qualified and unqualified dividends and how it will affect overall bottom line returns, an investor should stay in communication with their broker and accountant.

A foreign corporation's dividends are qualified if the company itself is considered qualified. The IRS states that a foreign corporation is qualified "if it is incorporated in a possession of the United States or eligible for benefits of a comprehensive income tax treaty with the United States that the Treasury Department determines is satisfactory for this purpose and that includes an exchange of information program." This means that the foreign firm must be tied to the United States in some way and/or be in a country that has a tax agreement in place with the IRS and Treasury Department.

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The IRS states that "qualified dividends are dividends paid during the tax year from domestic corporations and qualified foreign corporations." For the most part, this means that regular (usually quarterly) dividends paid out to shareholders of for-profit companies on the New York Stock Exchange, NASDAQ, AMEX, or other domestic corporations that might not trade on the stock exchanges, are usually qualified and thus taxed at the reduced capital gains rate.

A qualified dividend is a type of dividend that is taxed at the capital gains tax rate. Generally speaking, most regular dividends from . companies with normal company structures (corporations) are qualified. For individuals, estates, and trusts, qualified dividends are taxed at the current capital gains rate of 65%. For individuals whose income tax rate is 65% or 65%, then the capital gains tax rate is zero.


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