I just realized that many stock investors are not aware of the taxes on their dividend income. In fact, if you know how, you can be smarter in managing income from dividends.

So here’s the thing, if you own stocks that pay dividends, you basically receive passive income from those dividends. But this income will be taxed, depending on the type of account you have. If the dividend-paying stocks are in a regular account (not a retirement account), then the dividends received must be reported as income.

In many countries, including the US tax system, there’s good news: dividends are often taxed at a lower rate than regular income. This is called qualified dividends. But there are conditions. First, the dividend must come from a US company or a qualified foreign company (usually listed on major exchanges or has a tax treaty). Second, the dividend shouldn’t be from certain categories like mutual banks or employee stock plans. Third, you must hold the stock for at least 61 days within the 121-day period before the ex-dividend date. If any of these conditions aren’t met, the dividend is considered ordinary income and taxed at the normal rate.

Regarding how much tax on stock dividends, it depends on your total income and filing status. Qualified dividends are usually taxed at 0%, 15%, or 20%, depending on income brackets. Meanwhile, unqualified dividends are taxed at the higher ordinary income rates. Plus, if your investment income is high, there’s an additional surtax of 3.8% for high-income earners.

There are several strategies you can try to minimize dividend taxes. First, keep dividend stocks in tax-deferred accounts like IRAs or retirement funds. This way, you don’t pay tax when dividends are received, but you pay when you withdraw. Second, make sure the stocks you choose are eligible for qualified dividend treatment. If they are foreign stocks, check whether the company meets the requirements. Third, avoid frequent trading. If you hold stocks for too short a period, dividends may become unqualified, and taxes could increase.

In short, dividend stock taxes aren’t something to fear if you know how. With proper planning, you can maximize passive income from dividends and pay the least amount of tax possible. It’s worth doing more research before you start investing in dividend-paying stocks.