How to Estimate Impact of Qualified Dividends for 2008

Question

I understand that the tax rate for qualified dividends (and capital gains) is 0% if your joint return had taxable income $65,150 or less.

Suppose I have the following (joint return, both H&W over 65):

Pension 40,000 Social Sec 18,000 Dividends 15,000 of which 8000 are qualified dividends.

In 2007 from above, total Income is 73,000 less 18,000 in deductions for a taxable income of $55000. Tax due is based on $55,000 which equates to about $7000. If I have basically the same income for 2008, can I reduce the total income by $8000 (due to qualified dividends not being taxed) to $65000? If so, this should reduce my tax by about $800 (roughly).

Are my assumptions correct?

Alan · Accepted Answer

Your assumptions and numbers are not correct. $55000 of AGI w/o SSA benefits would trigger 85% of your SSA benefits being taxed. Subtracting your std deduction plus kicker for those over age 65 and your two personal exemptions gets your taxable income below the 25% marginal tax bracket. As such, your qualified dividends in 2007 would be taxed at 5%. In 2008, they would not be taxed. You save 5% of $8000 = $400.

Don Priebe · Answer

In addition, my crystal ball says that both the standard deduction and the personal exemptions go up in 2008 by a total of $400. So you save an additional 15% of $400, or $60. Total savings $460.

[Now someone factor in the increase of social security ... ]

How to Estimate Impact of Qualified Dividends for 2008

Join the Discussion

Didn't find your answer?