Stay Tuned for Special Dividends

The year 2010 is particularly exciting for those who breathlessly follow tax developments. Unless our government steps in, a slew of Bush-era tax cuts will expire at the end of the year. Thus, we may see a slew of special one-time dividends paid out by companies before the clock strikes midnight. But before you get too excited, remember that special dividends aren’t all they appear to be. Right now, the maximum 15% tax rate applies to most dividend income. As of Jan. 1, that rate is slated to revert to the ordinary income rate. It falls in the 25% to 28% range for most of us, but could be as high as 39.6% for wealthier folks. If you collect $10,000 per year in dividends, your tax hit will go from $1,500 to $2,500, or $2,800, or possibly to nearly $4,000.... Read more