What best describes qualified dividends?

Qualified dividends are indeed ordinary dividends that meet specific criteria set by the IRS and are taxed at more favorable rates compared to ordinary income. The key aspect of qualified dividends is that they are subject to the same maximum tax rate that applies to net capital gain, which is generally lower than the rates for ordinary income. This preferential tax treatment is intended to encourage long-term investment in stocks.

For dividends to be classified as qualified, they typically need to have been paid by a U.S. corporation or a qualified foreign corporation, and the shareholder must hold the stock for a specified period around the date of the dividend payment. This provides a significant tax advantage, as it incentivizes longer holding periods for investors.

In contrast, while other options mention various types of dividends, none reflect the specific tax treatment that qualified dividends receive. Therefore, option B accurately captures the essence of what defines qualified dividends as they relate directly to the tax implications for shareholders.