\u2022 Distributions from stock shares are dividends.
\n\u2022 Distributions from money market funds and some distributions from mutual funds are also
\ndividends.
\n\u2022 All payments classified as dividends are ordinary dividends for tax purposes and taxed as
\nordinary income.<\/p>\n
\u2022 Dividends paid by US corporations or foreign corporations located in a country with which the
\nUS has a tax treaty or that are listed on a major exchange may be qualified for a lower US
\nincome tax rate.
\n\u2022 There are two criteria to be met for a payment to qualify for a lower tax rate:
\no The payment must be from one of the entities described above; and
\no You must hold the security for 60-days before or after the payment (own for 60-days in
\na 121-day window). Note that the day of purchase is not counted.
\n\u2022 The tax rate for qualified dividends is the long-term capital gains rate, which is lower than
\nordinary income rates.<\/p>\n
\u2022 We often think of money market distributions as interest payments since the underlying assets
\nare generally interest-bearing instruments rather than stock. However, by definition, money
\nmarket funds pay dividends not interest.
\n\u2022 Even municipal money market funds, which contain municipal bonds and US Treasury money
\nmarket funds that hold US government securities, pay dividends and not interest.
\n\u2022 Payments from money market funds do not qualify for the lower income tax rate of qualified
\ndividends.<\/p>\n
\u2022 Mutual funds can distribute ordinary dividends, ordinary dividends that meet the criteria as
\nqualified dividends, short-term capital gain dividends and long-term capital gain dividends.
\n\u2022 The source of the funds determines the type of dividend it is.<\/p>\n
For example, if a mutual fund holds a security over a year and then sells it generating a<\/em> The tax rates that apply are as follows: <\/p>\n","protected":false},"excerpt":{"rendered":" The main topics of this lesson are: Ordinary and Qualified Dividends; Money Market Dividends; and Mutual Fund Dividends. For this lesson, refer to the Study Notes and watch the video for a synopsis.<\/p>\n","protected":false},"author":929,"featured_media":221456,"parent":0,"comment_status":"open","ping_status":"open","template":"","meta":{"_acf_changed":false,"footnotes":""},"contributors-categories":[13576],"traders-academy":[13125,13128,13132],"class_list":{"0":"post-175794","1":"trading-lessons","2":"type-trading-lessons","3":"status-publish","4":"has-post-thumbnail","6":"contributors-categories-interactive-brokers","7":"traders-academy-beginner-trading","8":"traders-academy-level","9":"traders-academy-trading-lesson"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"\n
\nlong-term capital gain, the profits are paid out to the mutual fund owners as a long-term<\/em>
\ncapital gain dividend.<\/em><\/p>\nTax Rates<\/h4>\n
\no Ordinary dividend \u2013 ordinary income tax rate
\no Qualified dividend \u2013 long-term capital gain rate
\no Short-term capital gain dividend \u2013 ordinary income tax rate
\no Long-term capital gain dividend \u2013 long-term capital gain rate<\/p>\n