What Are Gross Dividends?
You know how gross income is your total earnings before deductions? Well, gross dividends work the same way—they're the full sum of all dividends you receive as an investor for tax purposes. This includes all ordinary dividends paid out, plus any capital gains distributions and non-taxable distributions you get during the year, all before taxes, fees, or expenses come into play.
I should point out that gross dividends stand in contrast to net dividends, which are what you end up with after those deductions.
Key Takeaways
- Gross dividends, for tax purposes, include all ordinary dividends plus capital gains distributions and non-taxable distributions.
- Gross dividends will be adjusted for the presence of qualified dividends as well as any associated fees and expenses of receiving dividends.
- Taxpayers use IRS Form 1099-DIV to calculate their taxable exposure to dividend and related investment income.
Understanding Gross Dividends
Most of the time, if you're an American investor, your gross dividends get reported on IRS Form 1099-DIV. You'll see ordinary dividends in Box 1a, and other types listed in their own spots. Remember, all dividends count as ordinary unless they're specifically marked as qualified. Box 1b is for qualified dividends, showing the part of Box 1a that might qualify for lower capital gains rates. Box 3 covers non-dividend distributions.
The form gets sent to anyone who received at least $10 in dividends, including capital gain or exempt-interest dividends, or if foreign taxes were withheld on dividends and distributions over the year. Not everything on the 1099-DIV goes on Schedule B, though.
In many countries, dividend income gets a better tax rate than ordinary income, so you might seek out dividend-paying stocks to benefit from that. How much tax you owe depends on your overall income and if the dividends are qualified or not.
Example of a Gross Dividend Versus a Net Dividend
Let's look at an example: suppose company ABCXYZ issues a $1.20 dividend per share to its shareholders. If you own 1,000 shares, that gives you $1,200 in gross dividends for the year. U.S. companies usually pay quarterly, while those outside the U.S. often go annual or semi-annual.
Now, if it's an ordinary dividend taxed at 35%, plus 2% in fees and expenses, your net dividend drops to $756. But if it's qualified with a 15% tax rate, you'd net $996 instead.
