I'm not asking for help preparing taxes. My accountant does my taxes and then sends me the completed forms. He files them electronically, so I don't even have to send them in. All I do is pay him and pay the government. But I'm curious about some terms, so I can figure if my income as stated on the 1040 is what I thought it was (by adding up on my own the money that actually came in to me). Here are the terms I'd like to understand: Line 8a is "Taxable interest." That's pretty clear. Line 8b is "Tax-exempt interest." That's clear also. If I add those two, that's the total interest I received. Now here's where I'm confused: Line 9a is "Ordinary dividends" and 9b is "Qualified dividends." What do those two terms mean? Are qualified dividends something I received in addition to the ordinary dividends, or are qualified dividends a sub-category within ordinary dividends? Or to put it another way, do I add the two together to know how much total dividends I got, or do I ignore the qualified dividends as being already counted in the ordinary dividends? And what is meant by "qualified dividends" anyway? I repeat that I'm not asking for instructions how to fill in these lines on the forms. My accountant did that. I'm just curious as to what the Bunny they mean. Thanks.
You would add the two together. As for what is qualified: [ame=http://en.wikipedia.org/wiki/Qualified_dividend]Qualified dividend - Wikipedia, the free encyclopedia[/ame]
Wiki has a good explanation of qualified dividends, but I liked this overview from the infernal revenue service. Ordinary dividends are the most common type of distribution from a corporation. They are paid out of the earnings and profits of the corporation. Ordinary dividends are taxable as ordinary income unless they are qualified dividends. Qualified dividends are ordinary dividends that meet the requirements to be taxed as net capital gains. My summary: they're ordinary dividends unless they're qualified and qualified dividends are ordinary dividends. Your tax treatment may vary. This type of stuff is one reason why I could never be an accountant.
BTW, I favor progressive, graduated income tax rates under which the more you make the higher your rate, even though this means I pay more taxes. It's just fair: the more you make the more you benefit from the economic conditions that prevail. But the present tax system is insanely complicated. I'd like to see all deductions and exemptions eliminated, and replaced with a simple tax table based on a graduated, progressive formula. If your total income was X then your tax is Y. The same table for everyone. Married people might be given the option of treating their total combined income as though each of them earned half of it. Using deductions to accomplish social or economic policy is wrought with unintended consequences and makes it impossible to calculate the real costs and benefits. If the government wants to subsidize certain activities (home purchases, clean cars, charitable donations, municipal borrowing, etc.) let them do it directly rather than through deductions and exemptions.
I almost agree, except that if you tried to accomplish those policy activities through other channels, it wouldn't be tracked as well as the IRS does it. (not that they get an A+ or anything, but if you had a dozen different agencies all doing the numbers, the margin of error would increase accordingly) And I don't know if anyone else said it, but "qualified" dividends seem to be designed to accomplish the economic policy of allowing those with the greatest weath, who derive most of their income from doing nothing but harvesting the proceeds of that wealth, to pay less than people who actually have to work for the same income.
I don't believe the IRS tracks the costs of the various deductions and exemptions. What you say about "qualified" dividends is true of all capital gains. I guess, from what's posted above, that qualified dividends are a type of capital gains: that is, when dividends qualify to be considered capital gains; like when you sell a piece of property or some stock for more than you paid. I've always thought it perverse that wages are taxed at a higher rate than money made by speculating.
