 Hello and welcome to this session in which we will discuss the taxation of dividend. The taxation of dividend for a long period of time was an easy concept because it was treated just like ordinary income. Wherever your wages were treated as, your dividend were treated the same way. Then starting in 2003 with the passage of jobs and growth act, dividend were started to be treated differently. Differently means they were getting a preferential treatment. They were taxed differently than ordinary income. Again in 2017 with the tax cuts and jobs act, again the taxation of dividend also was treated under a preferential treatment and this is what we're going to be discussing. Those numbers I will be showing you today belongs to 2019 which is basically the latest figures. Now in 2021, 2022 the thresholds might be different but the concept will be the same. So I'm going to show you the concept but the threshold might change because the threshold will change from year to year according to the IRS. Now before I start I would like to remind you that if you are an accounting student or a CPA candidate I strongly suggest you check out my website farhatlectures.com. I don't replace your CPA review course. What I intend to do is give you supplemental explanation for your CPA review course so I can add 10 to 15 points to your score. I can improve your CPA score where you can pass the exam. All you can do is try me for a month, see if it works. Your risk is one month, your potential gain is passing the exam. Also I do have resources for your tax accounting audit finance courses. Please connect with me on LinkedIn if you haven't done so. Like my recording on YouTube, follow me on Instagram and Facebook. So let's go ahead and take a look at the taxation of dividend. What you need to know is this so we're going to be looking at this at this box here. You can ignore the other rate. We'll talk about those later on in a separate in a separate for separate topics. So here's what's going to happen but all depends on your taxable income and let's start with that. If you are single or married filing separately and you only make your taxable income between 0 and 40,000, guess what? Your tax rate is 0 for dividend. If you are married filing jointly and you earn between 0 and 80% or your taxable income is that much, you don't pay any taxes. If you're ahead of a household up to 53,600, you pay no taxes on your dividend. So there's no taxes. So if you receive dividend, you only make up to 52,000 for head of a household, you pay no taxes. Now, if what happened if you are single, you make more than 40, therefore it's no longer 0, but you make up to 441,050 dollars, your tax rate for the dividend is 15. You're married filing jointly, you make more than 80 because remember, if you make less than 80, you don't have to pay taxes on your dividend, up to 496,000, your tax rate is 15. Head of household, your taxable income start if it's between 53,600 and 469,50, 15%. So notice, we have right now we have three rates, zero and 15%. What does it depend on? It depends on your taxable income and filing status. Now we have a third one, which is 20%. If you are single and make more than 441,000, 450, you become, you pay 20%. The same concept applies married filing jointly when you go above 496, it becomes 20%. So the highest is 20%. The highest rate is 20%. So let's take a look at this example to illustrate the concept. Compute the tax for a single individual who has a taxable income of 110 and 1,000 in dividend. So my first question to you is this, in which tax bracket does this individual belong? Well, this is the single schedule. If I ask you what's tax bracket, they belong right here. 110 is between 85 and 163. You would say their tax bracket is 24,000. That was the question. Now, how much will they pay taxes for the $1,000 dividend? Well, how do we find out? Well, remember the dividend, they have a special tax rate. We have to come back to this and the individual is 110,000 in their single. So single 110,000 is between 40 and 440, 1,000, 450. Therefore, they're going to have to pay 15% on that additional dividend. So let's go ahead and compute their tax. So here's what you do first. First, you compute the tax, their taxable income and you compute the dividend last. So you keep the dividend as the last computation. Let's go ahead and do that. 110,000. If we are looking at 110,000, their tax bill should be 14,605. 14,605. Let's make it 606. Plus 24% times the amount that's over 85,525. Let's pull the calculator here and compute that figure. So we have, let's make sure we have the calculator up here. 110,000. 110,000 minus 85,525 equal to 24,475. We're going to multiply this amount by 24. That's their highest tax bracket. That's 5,874 and we're going to add to it the 14,606 plus 14,606 and that's equal to 20,480. So that's the tax that they pay on the 110,000. Remember they have to pay also on the additional, on the additional 1,000 in dividend. Well, we said the 1,000 in dividend subject 15% based on their filing status. Therefore, we have to add $150 plus, plus 150. That's 20,630 and this is another computation of it. This is the amount in addition to the, this is the amount in addition to the, to the 85,525 times 24. So it's 14,606 plus 5,874. Then you add the dividend. Let's work another example. We have a merit filing jointly taxpayer. They have a taxable income of 199,290 that include qualified dividend of 43,084. Now we have to be very careful because the problem says it includes, this amount is included here. So what do we, what do I have to do first? I have to take 144,290 minus 43,084. Let's do that because the amount is included. 144,290 minus 43,084 and that's going to give us 139906. 139906. Now let's do the 139906 first. 139906 belongs in, belongs in this tax bracket because this is merit filing jointly. So the tax is $29,211 plus the amount in access plus 24,000 and the amount in access of, actually no, they belong in this tax bracket right here. 139 is here. So it's 9,200 because when I said 29,000 I said that's a little bit too much. 9,235 plus the amount in access of 80,025. Therefore we're going to take 139906 minus 80,250 and that's going to equal to 59,656 and they're going to be in the, that's going to be 22% times 22%. That's the highest, they're in the 22% tax bracket. That's going to give us 13,124 and we're going to add to that 92,9235 okay and that's going to give us 22,000, 22,359. Are we done yet? Not yet. Remember we still have 4,384 of dividend. Now how do we know how much do we have to pay on this dividend? Well we have to find out what's the tax rate for this individual. This is married and they, and their taxable income is 139906. Let's go up here. Let's go up here. So 139 married, I would say it's in this tax bracket right here. They belong here. 139 is here. Therefore their tax bracket is 15%. So we're going to come back here, multiply this amount by 0.15. So we're going to take 4,384 times 0.15 and that's equal to 657. So the dividend amount is 657. Now we can add both amount plus 22,359 and that's going to give us 23,017. 23,017 and this is how we computed the total tax. Remember this amount is for the 144,290 and this amount is for the dividend. Together we'll give us the total tax bill for this client. Once again at the end of this recording, I'm going to remind you that if you are a CPA candidate or if you are an accounting student, if you want additional resources, lectures to supplement your course, please check out my website, farhatlectures.com. I'm only supplemental to your CPA review course. Good luck, study hard and stay safe.