Even if both dividends and capital gains are taxed at the same ordinary income tax rate, the effect of each type of tax is different because
A)capital gains are actually taxed, while dividends are taxed on paper only.
B)dividends are taxed when distributed, while capital gains are deferred until the stock is sold.
C)both dividends and capital gains are taxed every year.
D)capital gains are actually taxed, while dividends are taxed on paper; and both dividends and capital gains are taxed every year.

Question

Quizplus · Accepted Answer

Dividends are taxed when distributed, while capital gains are deferred until the stock is sold. This means that investors have the option to delay paying taxes on capital gains until they choose to sell the asset, while taxes on dividends are due in the year they are paid out. Therefore, the effect of each type of tax is different, even if they are taxed at the same rate.

Even If Both Dividends and Capital Gains Are Taxed at the Same