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Is dividends the same as capital gains? If not, what is the difference?

JohnFx
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CiaranWelsh
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2 Answers2

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They are different.

Dividends are profits of a company that are shared with stockholders.
Capital gains are the net profit you got from selling an investment.

JohnFx
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  • Excellant, thanks for the clear explaination. I needed to know whether I should lump together dividens from my company with gains from investing for tax purposes. I think you've made it clear that these two are different and therefore should not be lumped. – CiaranWelsh May 26 '21 at 15:22
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    @CiaranWelsh No they should not - they often have different tax rates. – D Stanley May 26 '21 at 15:38
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    @CiaranWelsh BTW It is "Dividends" not "Dividens" at first I thought it was just a typo, but you have repeated that spelling 3-4 times now. Just wanted to make sure you saw that in case you wanted to look up more resources. – JohnFx May 26 '21 at 15:44
  • haha and this basically shows my level of experience which such things. Thanks for help. – CiaranWelsh May 26 '21 at 15:51
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    @CiaranWelsh In the US, short-term capital gains are taxed at the same rate as ordinary income and dividends. Meanwhile, "qualified" dividends are taxed at the same rate as long-term capital gains. But you're still required to report these all separately. Is it confusing enough yet? – Barmar May 27 '21 at 14:44
  • Indeed =] I'm UK based, but I guarentee our system is just as complicated. – CiaranWelsh May 28 '21 at 12:39
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A dividend represents a portion of a company’s earnings and the amount that you receive depends on the payout rate and the number of shares that you own.

A capital gain is the profit from purchasing a security at one price and selling it at a higher price.

An area of confusion for some is when a mutual fund makes a capital gains distributions at the end of the year. Some think of it as a dividend but it is not. It is the result the fund's realized capital gains from trading and these gains must be passed along to its shareholders.

Bob Baerker
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