Income Investing

Dividends and Taxes: Keeping More of Your Profits

The dividends paid by C corporations are subject to double taxation, with the government taking a cut of the company’s earnings and the payouts received by investors.

Some foreign governments go one step further by withholding a portion of the dividends paid to non-resident investors.

Many US-based investors that own American depositary receipts associated with international companies never notice they’ve been shortchanged. To add insult to injury, these investors also pay US taxes on the remainder.

But not every country withholds a portion of the dividends paid to US residents.

The UK, for example, won’t take a cut of your dividends. And although Canada garnishes 15 percent of the dividends paid by holdings in US-based investors’ taxable accounts, this levy doesn’t apply to IRAs and other tax-deferred accounts.