With the uncertainty of whether the fiscal cliff will be resolved, we are seeing numerous U.S. companies paying out special dividends to shareholders now to avoid a potential massive tax hit later caused by the fiscal cliff
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New York, NY (PRWEB) December 04, 2012
Profit Confidential, an e-letter of Lombardi Publishing Corporation, a 26-year-old consumer publisher that has served over one million customers in 141 countries, warns that if the Bush-era tax cuts (the fiscal cliff) are allowed to dissipate on January 1, 2013, Americans will likely experience a significant jump in taxes, including those on dividends.
The current dividend tax of 15.0% is extremely accommodative to income seekers, but under the fiscal cliff, the tax on dividends for the highest tax bracket could surge to 39.6%. For dividend investors, this means a massive jump in taxes in 2013.
In a recent article, financial analyst George Leong noted that if investors earned $100.00 in dividends, and are in the top tax bracket, they currently pay $15.00 in dividend taxes. If the fiscal cliff isn’t averted on January 1, 2013, the tax on that same $100.00 dividend would increase to a whopping $39.60.
“With the uncertainty of whether the fiscal cliff will be resolved, we are seeing numerous U.S. companies paying out special dividends to shareholders now to avoid a potential massive tax hit later caused by the fiscal cliff,” said Leong.
From the end of September to mid-November, 59 companies belonging to the Russell 3000 Index announced special cash dividends, compared to 15 companies in the same timeframe in 2011. (Source: “Special Dividends Surge Fourfold as U.S. Tax Increase Looms,” Bloomberg Businessweek, November 19, 2012.)
Leong added, “The move to initiate special dividends is not a surprise, and I expect the payments to continue over the next few weeks unless a deal is struck. Assuming the fiscal cliff is coming, as an investor, you want to try to receive some dividend income this year at the lower tax rates.”
Costco Wholesale Corporation, which usually pays an annual dividend of $1.10 per share, announced that it was paying a special $7.00 a share dividend, or seven percent of its prevailing share price. Investors still have a chance to partake, as the special dividend is payable on December 18 to shareholders of record on December 10. Companies that have strong cash reserves, like Costco, are looking to return cash to investors before the dividend rates ratchet higher.
“The special payouts are not limited to the large-cap stocks. Small-cap Movado Group, Inc.…armed with about $156 million in free cash, declared a special dividend of $0.75 a share to be paid in December,” Leong confirmed.
There are a number of companies that have announced special dividends that investors can still get in on: Wynn Resorts Ltd. is offering an $8.00 special dividend; Las Vegas Sands Corp. is offering a $2.75 special dividend; and Dillard’s Inc. is offering a $5.00 special dividend.
What’s the bottom line for investors? “Take the money now, and enjoy the lower taxes,” Leong concluded.
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, and to get its popular Profit Confidential e-letter sent to you daily, visit http://www.profitconfidential.com. Or, visit http://www.lombardipublishing.com/customer-service.html.