If you have an investments in stocks or mutual funds for income, what kind of dividends are you earning? There is more than one type of dividend, and the type you are receiving may be costing you more than you realize. Dividends from any regular corporation are normally dividends ‘qualifying’ for special tax treatment. These ‘qualified’ dividends are taxed at a maximum rate of 15%, and if you are in the 15% bracket or less for federal taxes, they are not taxed at all! If the dividends you are earning are not ‘qualified’ (REIT and preferred stock dividends come to mind, among others), you will pay ordinary federal tax rates on them.
If you have a qualified dividend paying you 5% and a nonqualifed dividend or a corporate bond paying you 5.7%, you are actually earning more money after taxes with the qualifed dividend. You need to think about this before you invest in any income producing security.