Qualified Dividends

Qualified dividends are dividends that meet certain IRS requirements and are taxed at lower capital gains rates rather than ordinary income tax rates. To qualify, the dividends must be paid by a U.S. corporation or a qualified foreign corporation, and the investor must hold the stock for a certain minimum period.

The holding period requirement generally involves owning the stock for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. Qualified dividends are a tax-advantaged form of investment income.

They can significantly reduce an investor's overall tax liability. Understanding the rules surrounding qualified dividends is important for maximizing after-tax investment returns.