Fortunately under the new tax code the thresholds remain to qualify for zero tax on qualified dividends and capital gains. Taxpayers who are in the old 10% and 15% tax brackets are the beneficiaries of this little wrinkle of the tax code and the good news is that it survived! If your taxable income is under $38,600 for individuals and $77,200 for couples, you qualify for 0% tax on qualified dividends and capital gains. However, its important to note that these income levels are different than the new 10% and 12% tax brackets. They follow the old schedule just to confuse you!
Qualified dividends are generally paid by US companies. This is why good tax location planning will put US stocks/funds in your NON retirement account. Who doesn’t want a tax free dividend. And, if you sell a security and realize a gain, it too is tax free! The transition to the 20% rate for capital gains occurs at income levels of $425,800 for singles and $479,000 for married couples. Plus, the 3.8% medicare tax on net investment income survived for taxpayers with AGI north of $200,000 for singles and $250,000 for married.
Good tax location planning is a very important part of the overall wealth management process.