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Dividends vs Interest: What's the Difference?

When it comes to your investment portfolio,

you may be wondering what the difference is between dividends and interest. Both are

earnings that are generated from your investments, but they are taxed differently. Here's

a look at the key differences between dividends and interest.

What Are Dividends?

Dividends are payments made by a corporation to its shareholders.

They are typically paid out quarterly and are a portion of the company's profits.

Dividends are considered taxable income, but there is a special tax rate for

qualified dividends. To be considered qualified, the dividend must be paid by a U.S.

corporation or a qualifying foreign corporation. The dividend must also be held for a

certain period of time, which is typically 60 days.

What Are Interest Payments?

Interest payments are made by a borrower to a lender.

The payments are typically made on a monthly basis and are a portion of the loan's

principal.

Interest payments are considered taxable income, but there is a special tax rate for

qualified interest. To be considered qualified, the interest must be paid by a U.S.

corporation or a qualifying foreign corporation. The interest must also be held for a

certain period of time, which is typically 60 days.

How Are Dividends and Interest Taxed?

Dividends and interest are both considered taxable

income. However, there is a special tax rate for qualified dividends and interest.

To be considered qualified, the dividend or interest must be paid by a U.S.

corporation or a qualifying foreign corporation. The dividend or interest must also be

held for a certain period of time, which is typically 60 days.

What's the Bottom Line?

The bottom line is that dividends and interest are both

earnings that are generated from your investments. However, they are taxed differently.

Dividends are considered taxable income, but there is a special tax rate for qualified

dividends. Interest payments are also considered taxable income, but there is a special

tax rate for qualified interest.

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