Financial Planning: Dividends

Articles   (Jump to FAQs)

How Dividends Impact Your Stock Option Strategy (Part 1) 

Tom Davison
With the lower tax rate on dividends, let's look at the effects of dividends on your planning for stock options and restricted stock.

How Dividends Impact Your Stock Option Strategy (Part 2) 

Tom Davison
The lower tax rate on dividends may change your option planning. Part 1 explained basic dividend rules. This article looks at dividend strategy.

When To Wait, Hold, Or Sell: A Wealth Manager Reveals His Exercise Strategy Wisdom (Part 1) 

Tim Kochis
Once your stock options vest, you need a strategy to maximize their wealth-building value. But no single strategy fits everyone. This article discusses various approaches to planning your option exercises.

IRS Publication 550: Investment Income And Expenses

Internal Revenue Service
This extensive IRS guide covers many topics related to reporting income and expenses from investments, including dividends (Chapter 1), capital gains (Chapter 4), and interest on loans (Chapter 3). (To view this you need the Adobe Acrobat Reader, which you can obtain free here.)

The Torture Of The Dividend Tax

Anne Tergesen
BusinessWeek, 3/29/04
You must follow complex and tricky holding-period rules to make dividends "qualified" for the special tax rate of 15%. (A subscription is required.)

IRS Eases Dividend Rules

Eva Rosenberg
CBS.MarketWatch.com, 2/20/04
Qualified dividends are being redefined as dividends on stocks that have been held for at least a 61-day period during the 121-day period (instead of the original law's 120-day period) that begins 60 days before the ex-dividend date. (Registration is required.)

D'oh! The Qualified Dividend Glitch

Kaye Thomas
Fairmark Press Tax Guide For Investors, 2/13/04
You have to hold the shares at least 61 days if you want to claim the lower qualified dividend tax rate. The holding period calculation is tricky.

Return to top of this page

---

FAQs   (Jump to articles)

How does a dividend affect the value of stock options, restricted stock, and restricted stock units? 

In theory, when a company pays a dividend, particularly a large special dividend, its stock value declines by...

NEW! Are qualified dividends included in the AMT calculation? 

Qualified dividends do receive special tax treatment when they are part of your net capital gain. The amount of AMT is capped by the...

Am I entitled to voting rights or any stock dividends paid to shareholders before I exercise? 

No. Until you exercise a stock option, you do not have the rights of a...

I plan to exercise options for stock that pays dividends. Are there any exercise strategies or at least mistakes to avoid? 

To receive a dividend you must own a stock on the record date, so you want to be aware of the ex-dividend date. Also consider...

Do I get dividends with restricted stock units (RSUs)? How are they taxed? 

When a company pays dividends on outstanding shares of stock, it can choose...

Do I receive dividends on unvested restricted stock and have voting rights? 

Typically, though you cannot transfer them until vesting, shares of restricted stock are issued to you and are outstanding in your name. Therefore...

Can I reinvest my restricted stock dividends in more company stock instead of taking cash income now? 

Instead of paying cash dividends, a small number of companies require...

Does receiving dividend payments on my restricted stock before it vests mean I automatically get the stock even if I leave the company before vesting? 

Dividends and the shareholder voting rights that go with restricted stock do not...

How are the dividends on restricted stock taxed and reported to me? 

Dividends that are earned on restricted stock are considered compensation income, which is reported on your W-2...

When does my holding period for the special tax rate on dividends begin? At exercise or vesting? 

The holding period to determine whether a dividend is "qualified" and taxed at the lower 15% rate starts on the date after the option is exercised and the stock is held...

My company pays an attractive dividend. Assuming I hold the stock long enough, my dividends and capital gains are now taxed at 15%. Should I exercise and hold my NQSOs instead of just waiting to exercise near the end of the option term? 

The traditional strategy with NQSOs recommends waiting till...

Both dividends and long-term capital gains are now taxed at the same rate. Can I net my dividends from my company stock against capital loss from the sale of company stock or another security? 

No. Under the 2003 tax cut, qualified dividends are taxed at the same rates as long-term capital gains...

If I hedge my company stock, will the dividends qualify for the special 15% tax rate? 

This is not likely. Under the 2003 tax cut, "qualified" dividends are taxed at a top rate of...

If my brokerage firm lends my dividend-paying company shares while I have a margin loan, will the dividends qualify for the special 15% tax rate? 

If you take out a margin loan from your brokerage firm, it can lend your shares to short sellers. If that stock pays a dividend while your shares are on loan, you will...

If I borrow money to exercise my options, can I deduct the interest payments against dividend income from my company stock? 

Maybe not. You are probably thinking that you can borrow money, such as with a margin loan, deduct this as an investment interest deduction, and net it against investment income...

Return to top of FAQs    Return to top of page