Question

Select all that apply. Which of the following types of income may be taxed at rates lower than the tax rate schedule would dictate? (Check all that apply.)

a) Qualified dividends
b) Ordinary income
c) Long-term capital gains
d) Tax-exempt interest

Answer 1

Qualified dividends and long-term capital gains are taxed at lower rates than the tax rate schedule, whereas ordinary income is taxed at regular rates and tax-exempt interest is not taxed.

Step-by-step explanation:

Among the types of income that may be taxed at rates lower than the standard tax rate schedule are qualified dividends and long-term capital gains. Qualified dividends are taxed at a lower tax rate similar to long-term capital gains, which are profits from the sale of an asset held for more than a year. Tax-exempt interest earns its name because it is not subject to federal income tax, and in some cases, state and local taxes as well. Ordinary income, such as wages, salaries, and interest income, is typically taxed at regular progressive tax rates and does not receive this favorable tax treatment.