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Financial Planning / Tax Strategies
|Subject: Re: Fiscal cliff and dividend paying stocks||Date: 12/22/2012 9:53 AM|
|Author: TMFBigFrog||Number: 117210 of 122331|
I'm of the opinion that companies paid dividends before the Bush Tax Cuts were enacted and those same companies will very likely continue to pay dividends after the Bush Tax Cuts expire. Indeed, just this month, I started a real-money portfolio on the fool.com site that's focused on companies that pay and have regularly increased their dividend payments. Many of those companies have dividend track records that go back decades -- well before even the first Bush was President.
I learned a long time ago -- through watching something in the neighborhood of a $6,000 gain turn into an approximately $11,000 loss while waiting for a stock to move to "long term" tax treatment -- that letting taxes drive investment decisions is very often a bad idea. I still pay attention to taxes, of course, but it's just one factor in the buy/sell/hold decision rather than the key factor.
From a tax perspective, I think of it this way: The S&P Depository Receipt has a yield of about 2%. If I have $10,000 invested, that translates to about $200 per year in income. In the 25% tax bracket, I'd lose about $50 to taxes -- 0.5% of the investment. Under the Bush dividend tax rates, I'd still be paying 15% to taxes -- about $30. So in essence, it's a tax increase of $20 per $10,000 invested. (Your results may vary depending on your tax rate, portfolio size, and investment choices.) It's real money, to be sure, but an extra 0.2% annual friction cost on my portfolio isn't enough in and of itself to force me to radically change my investment plans.
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