[HDThoreaun]

Dividends pay the exact same tax rate as selling stock which is how you make money from buybacks. The difference is that buybacks allow you to take the income in the future and shift the tax burden timing.

Both dividends and stock selling are normal income tax rate if you've held the stock for less than 6 months and capital gains rate if you've held for more.

[malfist]

Selling stock isn't entirely how you make money from buybacks.

Buybacks inflate the stock price, making what you're holding more valuable, even if you don't sell. More valuable assets are useful for all sorts of things, including leveraging them for other activities, or selling them for capital gains.

[HDThoreaun]

Absolutely can get into all that, buybacks definitely are better for tax purposes, but saying "buybacks are taxed at capital gains rate and dividends are income tax rate" is not correct

[taeric]

For stocks that don't pay dividends, the only way you can make money from them is by selling.

You are right that you can leverage them in all sorts of ways, but that isn't really what anyone means by making money. It is how you drown folks in leveraged debt that they can't pay back later, of course.

[aketchum]

Are you sure about this? I believe you would prefer a share value increase of $1 instead of a dividend of $1, as you are taxed on dividends as income (income tax) but stock appreciation is capital gains (lower tax than income tax). This is in the context of American taxes.

[spokesbeing]

"Qualified dividends" are taxed the same as capital gains. To be qualified mostly depends on a minimum holding time, 60 days for common stock.

https://en.m.wikipedia.org/wiki/Qualified_dividend

[RC_ITR]

You pay tax on the cash now, you choose when to pay tax on the share price increase.

Money has time value.

[spokesbeing]

Of course but that's not what the parent comment is asking clarification on. Dividends are, generally, not taxed at income tax rate if you are buy and hold. They are taxed at CG rate.

A bigger downside of dividends is that you can't offset qualified dividends income with capital losses (except up to the $3000 annual limit). And compounding is different because you pay tax only at the end rather than every year. But those are different issues.

While I'm at there's the additional wrinkle that being able to actually get a significant LTCG rate difference by deferring the income really depends on structure of your future income and when in your lifetime you will sell.

[nemo44x]

They aren't buying your shares back if you aren't selling them. The buyback makes each share worth more. You don't sell. You have something more valuable than before and now you can borrow money against it. That's the point.

[sbierwagen]

LTCG threshold is one year, not six months.