#5 Dividends

A lot of people reach retirement age, and while they have a savings account and another type of income, they still own stocks from when they diversified their portfolios. Whether they are through mutual funds or direct stocks, if the company is successful every year, it will have to pay its stockholders some amount in dividends. This amount can be very little or quite high, depending on the type of dividend you receive.

There are two types of dividends, and each of them is taxed differently. If we are talking about qualified dividends, which are the most common type of dividend on the market, then they will end up being taxed according to the long-term capital gains rates for that year. If they are non-qualified dividends, then they will be taxed according to the ordinary income tax rates. Before the tax season rolls around, make sure you know what type of dividend you own.