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)both A and C.

Question

Quizplus · Accepted Answer

Dividends are taxed when distributed, meaning that the investor has to pay taxes on the dividend income in the year it is received. On the other hand, capital gains are deferred until the stock is sold, meaning that the investor can postpone paying taxes on any gains until they sell the stock. This difference in timing can have a significant impact on an investor's tax liability and investment strategy. Option A is not correct as both dividends and capital gains are taxed in practice. Option C is also incorrect as capital gains are not taxed every year - they are only taxed when the stock is sold.

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