I love dividends. Albert Einstein claimed compound interest was the eighth wonder of the world, and I agree somewhat, but I would suggest that dividends are pretty darn close to being a close second.

I love dividends for the following reasons:

1. They require zero time, effort or worry on my part

2. They keep coming forever

3. They increase to keep up with inflation

4. I have a ton of control over my own income

5. They are super tax efficient

I have rambled on about these benefits before (..and I will again) but today I would like to focus on #5:

Tax Benefits

I am not a tax expert and I hope that you will get advice form a real accountant concerning your own tax situation but here is my two-bits based on my experience. I am going to present you with some real numbers that adhere to the tax laws here in Alberta, Canada. Your particular corner of the world may be slightly different, but in general, the principles are pretty widespread throughout the modern world.

$100,000.00 per year

I like things simple, so I am using an income of 100K per year to show the math. I realize that is a lot of money and not very many people make that much, but for the ease of demonstration purposes, and to include the higher marginal tax rates some people experience it will suit my purposes. 

So let’s say you earn 100K per year. Lets look at HOW you earn that money and the tax implications of each:

Salary:

If you earn $100,000.00 per year from a salary you will pay:

Income Tax: $26,725 

This is not including CPP or EI deductions.  This amounts to an average tax rate of 26.7% 

You would keep $73,275.00. 

Interest: (Let’s see if Albert Einstein knew what he was talking about)

Income tax: $23,904

It is a little better but you are still paying 23.9% average tax

Capital Gains:

Income tax: $8,546

WOW! THAT IS WAY BETTER. Because you only pay tax on 50% of capital gains. Nice

But wait…

Dividend income

If you earned $100,000.00 per year in dividend income (and it was your ONLY source of income) you would pay:

Income tax: $5,786 

That is an average tax rate of 5.7% 

You would take home $94,214. 

Starting to see the picture? 

And get this, if you split the dividend income between you and your spouse, you would pay almost ZERO tax. Yes you heard me right. You can earn about 48K per year in dividend income without paying any tax as the corporation giving you the dividend has already paid it. If both you and your spouse earn 48K that is a total of 96K per year, tax free. 

I don’t know about you, but I am not a fan of paying more taxes than I have to. I am all for taxes, as we need social programs to function, but why pay more than is necessary?

So if you want to keep more of your “hard earned” money I suggest learning how to create dividend income. 

You might not need as much money as you think to earn a good living from dividends either. If you wanted to earn 60K a year from dividends you just need to find a stock that pays the proper yield. The higher the yield, the less you need.

Sign up for my newsletter and receive my FREE stock picking guide which will give you a full explanation of dividends and what to look for when picking dividend stocks.

My book BYOB outlines a plan to get your dividend investing strategy kick started and a magical way to accelerate your wealth creation plan.

If you want a step-by-step guide to making a dividend lifestyle a reality, enrol in my training course and you will be on your way to enjoying the rewards of financial freedom from dividend income. 

I wish you the best in these crazy times. Please be safe and HAPPY INVESTING!

I owe a great deal of my success to the legendary Brian Tracy. Through his books and programs I learned so many ideas and strategies that changed my life! Check out his website below and see if he can help you too!