I'm curious to know what the difference is between dividend & interest? Which one of these incomes would be classified under a lower tax bracket (as opposed to being part of my gross income & taxed at that rate)? Maybe I should rephrase: which of these count as capital gain and which would count as normal income?

 

Dividends are paid to stockholders; interest is paid to bondholders. Qualified dividends are currently taxed at up to 15%, while interest is taxed at your normal income tax rate (up to 35% for some). That's the simplest answer available. For more, read this old, but still relevant article:

http://www.fool.com/personal-finance/taxes...-dividends.aspx

Oh, and dividends are not classified as capital gains, but they are taxed at the same rate as capital gains, I believe.

 

Interest is considered unearned income; my recollection is that this is more likely to trigger AMT than earned income is. Consult your tax professional.

 

dividends would be unearned as well.

 

There you go: both nasty.

(It hasn't quite been thirty years since my two tax accounting courses.)

 

Under current tax law, the more income you have, the more likely it would be that dividends would be advantageous. Dividends are taxed up to 15% and interest can be taxed up to 35%.

If you know your marginal tax bracket and it's above 15%, then dividends would be better from a tax perspective than interest.