9. If both dividends and capital gains are taxed at the same ordinary income tax rate, some difference in the tax effect still exists because:

 

  • Dividends are immediately taxed while capital gains are deferred until the stock is sold.
  • Capital gains are immediately taxed while dividends are deferred until the stock is sold.
  • Both dividends and capital gains are theoretically taxed every year but in practice, capital gains are rarely taxed.
  • There is no difference: both dividends and capital gains are taxed every year.

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