From William Perez,
Your Guide to Tax Planning: U.S..
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Definition: Dividends are a share of a company's profits that is divided among shareholders. People who own stocks, bonds, or mutual funds, may receive dividends from those investments.

Dividends are taxed either as ordinary income or as qualified dividends. In order to be taxed as a qualified dividend, the investor "must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date," as the IRS explains in Publication 550.

The tax rate on qualified dividends is 5% or 15% (depending on the individual's income tax rate). If the individual has a regular income tax rate of 25% or higher, then the qualified dividend tax rate is 15%. If the individual's income tax rate is less than 25%, then qualified dividends are taxed at the 5% rate.

Ordinary and qualified dividends are reported on Form 1099-DIV. All dividends paid will be reported as ordinary dividends on Form 1099-DIV box 1a. Some or all of these ordinary dividends may be qualified dividends. Qualified dividends are reported on Form 1099-DIV box 1b.

Dividends are reported on Form 1040 Schedule B and Form 1040 lines 9a and 9b.

Also Known As: ordinary dividends, qualified dividends, dividend income, mutual fund dividends, stock dividends, bond dividends

Common Misspellings: divident, dividen