Series 7 Exam Question 297: Answer and Explanation

Question: 297

Regarding the taxation of dividends from corporate securities, which TWO of the following are TRUE?

I. Qualified dividends are taxed at the investor's income tax rate.

II. Qualified dividends are taxed at a maximum rate of 20 percent.

III. Nonqualified dividends are taxed at the investor's tax rate.

IV. Nonqualified dividends are taxed at a maximum rate of 20 percent.

• A. I and III
• B. I and IV
• C. II and III
• D. II and IV

Correct Answer: C

Explanation:

C. Dividends are profits shared by corporations. Dividends can be taxed as either qualified (up to a maximum rate of 20 percent) or nonqualified (according to the investor's tax bracket). In order for the dividends to be qualified, the investor must have held onto the stock for at least 61 days. The 61-day holding period starts 60 days prior to the ex-dividend date. The dividend tax rate is subject to change.