Dividends are additional payments received by a company's shareholders for the capital invested.
Taxes on dividends are calculated taking into account the amount of dividends received during the current tax year.
In addition, taxes are also affected by the tax rate to which the individual is subject.
First, dividends are taxed at the same rate as the income tax for the current tax year.
This rate is set by the federal government and varies depending on the taxpayer's income level. Once the tax rate is determined, the total amount of dividends received is divided by 12 to obtain the monthly average.
Second, you multiply the average monthly dividend amount by the applicable tax rate to calculate the total tax on dividends.
For example, if you received $10,000 in dividends during the year and are subject to a 20% rate, you will have to pay $2,000 in taxes. Tax rates may vary depending on the country and its tax laws.
Calculating shareholder income taxes
Shareholder income taxes are calculated according to the income and tax rates of the country where the dividends originate. This is known as the "source tax".
The source tax is usually withheld by the payer, which means that the shareholder will receive less money than he/she should receive. This difference can be claimed when filing the tax return.
Calculating Allowable Deductions
It is important to know the allowable deductions in order to correctly calculate the tax on dividends.
These deductions include the amount of value-added tax and the costs and expenses of managing the investment.
In addition, some states exempt some dividends from taxation, such as those from mutual funds or insurance.
Corporate income tax
Corporate taxes are a tax levied in the place where the company is established.
These taxes directly affect the company's dividends, as it is obliged to pay a certain amount of the profits earned.
This means that dividends will be reduced by the corporate income tax paid.
Income tax on foreign shareholders
Dividends from foreign companies may be taxed in the countries in which they are paid.
Therefore, before collecting dividends, it is important to understand how dividends are taxed.
Foreign shareholders are subject to a 24% tax, regardless of whether they are tax residents or not.
The tax is withheld at source by the payer (the bank or any other payer). However, there are some treaties to avoid double taxation that allow taxpayers to obtain a tax credit for the tax paid.
