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re: How to handle dividends and the taxes on them on a non retirement account
Posted on 8/14/23 at 9:32 am to Drizzt
Posted on 8/14/23 at 9:32 am to Drizzt
quote:
Unless you are making well over $10,000 a year in dividends, I don’t see how this is even a problem. You shouldn’t be getting a tax refund at the end of the year anyway if you are doing your withholdings right. Why give the Feds your money for a year interest free? Part of being a successful adult is realizing you might have to write a check at the end of the year for taxes and you should have enough funds to do this. Alternatively, you could sell any stocks that are down at the end of the year to take a loss for tax purposes to offset dividends but this isn’t always an option.
The condescension is appreciated.
I have my withholding down to almost zero. But now as my investment accounts grow, so do the dividends. I was just looking for the best way to account for this, preferably keeping the money required to pay for the taxes coming from each fund.
I’d rather not cut out of my cash savings the cost for my investments if I could help it. I’d prefer any taxes paid come from the accounts that caused/generated them if possible.
ETA: and you’re right. It’s not a lot currently. But I want to put the plan in place now while it is small amounts rather than letting it build up to a problem. Trying to be proactive. Manually investing the dividends is not a bad option and keeping the estimated tax amount in cash keeps it organized with the account like I was looking for. I just really hate the idea of robbing one account to pay for another. I prefer they stay self sustaining for organizational purposes if that makes sense.
This post was edited on 8/14/23 at 9:38 am
2
Posted on 8/14/23 at 10:27 am to jlovel7
quote:
I’d rather not cut out of my cash savings the cost for my investments if I could help it. I’d prefer any taxes paid come from the accounts that caused/generated them if possible.
I understand this desire, but rather than “pay taxes” out of the investment account, why not just save a little less around tax time? You’re going to run yourself mad trying to stay on top of the tax implications quarter by quarter, and it’s not like income is taxable in a vacuum - a raise at work increases how much of your dividends are taxable too.
Single filet with $45k in taxable wages and $5k in qualified dividends pays no taxes on the dividends at all, but a $10k raise means you now pay taxes on some of the dividends.
Posted on 8/14/23 at 5:00 pm to jlovel7
quote:
I’d rather not cut out of my cash savings the cost for my investments if I could help it. I’d prefer any taxes paid come from the accounts that caused/generated them if possible.
I understand this, but honestly it would drive me crazy trying to actively stay on top of this. I have around 100K in a taxable account that includes growth, growth and income stocks and VOO. It's my back up savings account in a way, since I never sell anything
Never once have the taxes on the dividends by substantial enough for me to take notice. And that's with BTI, ET, MPLX, XOM reinvesting close to $1,200 every quarter.
Hell, I could just sell some shares of a stock that lost money for year (before Dec 31 of course) and use the capital loss to offset the taxes on the dividends..if I paid that much attention to it (actually now that I think it, I probably should).
I can always buy the shares back if I really want to hold them awhile longer. I wouldn't lose anything, and I save on taxes.
Just an alternative strategy to consider.
Posted on 8/14/23 at 10:24 pm to Vols&Shaft83
quote:
I understand this, but honestly it would drive me crazy trying to actively stay on top of this. I have around 100K in a taxable account that includes growth, growth and income stocks and VOO. It's my back up savings account in a way, since I never sell anything Never once have the taxes on the dividends by substantial enough for me to take notice. And that's with BTI, ET, MPLX, XOM reinvesting close to $1,200 every quarter. Hell, I could just sell some shares of a stock that lost money for year (before Dec 31 of course) and use the capital loss to offset the taxes on the dividends..if I paid that much attention to it (actually now that I think it, I probably should). I can always buy the shares back if I really want to hold them awhile longer. I wouldn't lose anything, and I save on taxes. Just an alternative strategy to consider.
My goal is to get the system at least set in place and comfortable with it and confirming I’m calculating the tax correctly while it is merely a pittance and unlikely to be a problem before it gets to the point where if I frick it up it will be.
Posted on 8/15/23 at 12:52 pm to jlovel7
This doesn’t have to be very complicated. Your brokerage probably has some projection of annual dividend income. If you are a W-2 earner, use the IRS W-4 calculator to make changes to your W-4 and account for estimated dividend income (this calculator has inputs for other income/deductions/credits). If you are self-employed, adjust your estimated payments to account for the estimated tax effect of dividend income.
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