What is the Difference Between Dividend and Capital Gain?
🆚 Go to Comparative Table 🆚The main difference between dividends and capital gains lies in their nature and taxation. Here are the key distinctions between the two:
- Dividends:
- Dividends are payouts to shareholders from the profits of a company, authorized and declared by the board of directors.
- Dividends are considered income and are taxed accordingly, either as ordinary income or capital gains depending on the type of dividend.
- Qualified dividends are taxed at a lower rate than ordinary income.
- Dividends are usually paid regularly (quarterly, monthly, or annually).
- Capital Gains:
- Capital gains are the difference between the purchase price and the value of a security when it is sold.
- Capital gains are not considered income until they are realized through the sale of an investment.
- Capital gains are taxed at different rates depending on the holding period: short-term capital gains are taxed at the ordinary income tax rate, while long-term capital gains are taxed at a lower rate.
- Capital gains are more volatile as they depend on the fluctuating prices of assets.
In summary, dividends are payments made by companies to their shareholders from their profits, while capital gains are the profits realized when an investment is sold for more than its purchase price. Dividends are generally taxed at a lower rate than ordinary income, whereas capital gains are taxed at different rates depending on the holding period.
Comparative Table: Dividend vs Capital Gain
Here is a table comparing the differences between dividends and capital gains:
Feature | Dividends | Capital Gains |
---|---|---|
Definition | Dividends are payments made by a company to its shareholders from its profits. | Capital gains are the profits made on the sale of an asset, such as a share or property. |
Source | Dividends are paid by companies to their shareholders. | Capital gains are realized through the sale of investments. |
Taxation | Dividends are generally taxed at a lower rate than ordinary income. | Capital gains are taxed at a lower or higher rate, depending on the holding period. |
Realization | Dividends provide steady periodical income and are recorded as owner's equity on the company's balance sheet. | Capital gains are realized only when an investment is sold. |
Beneficiaries | Dividends benefit mostly shareholders. | Capital gains benefit the owners and investors who sell the assets. |
Both dividends and capital gains are forms of income for investors, but they differ in their source, taxation, realization, and beneficiaries. It's essential to understand these differences when making investment decisions and considering tax implications.
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- Interest vs Dividends
- Dividend vs Dividend Yield
- Profit vs Gain
- Short Term vs Long Term Capital Gains
- Dividend Growth vs Dividend Mutual Fund
- Divisor vs Dividend
- Stock Dividend vs Stock Split
- Dividends vs Earnings Per Share
- Equity vs Capital
- Interim Dividend vs Final Dividend
- Ordinary vs Qualified Dividends
- Capital vs Asset
- Profit vs Revenue
- Capital Market vs Stock Market
- Money Market vs Capital Market
- Cash vs Profit
- Net Profit vs Gross Profit