With taxes due next week, I just wanted to point out that the only things that are guaranteed in life are death and taxes. And since I plan on hustling until the day I day (sounds like a rap song), taxes play a huge role in my life. If you’re someone developing multiple income streams, here is what you need to know about both death and taxes.
Everybody dies. It is the most absolute fact of life. Most people don’t ever think about it, but if you’re developing multiple income streams, you should. Why? Because at some point in time you will die, and your family will have to deal with whatever income streams you have. This can be a good thing for them, but it can also be a difficult thing.
As such, whatever estate plans you have in place (will, trust, ect.), you should make sure that you include information on how to deal with your side hustles if necessary. If you just sold things on eBay, it won’t be too hard for your family to figure out. But if you have turned your side hustle into an incorporate business, your family may need help in selling or unwinding your business ventures. That is why it can be a good idea to lay out the specifics for them if you die, or put them in touch with your accountant or lawyer if you use one.
If you want your business to continue, and you family does too, it can be a good idea for your business to invest in your future as well, through the purchase of life insurance. If you’re the primary salesman, and your business relies on you for income, it is common for the business to take out a policy on you, payable to the business upon your death. This will give the business working capital until a replacement is found. Sad to think about, but vital for the business’ future.
Taxes are another guarantee with any side hustle. If you have multiple income streams, you could face taxes for:
- Business Income
- Rental Property
For investing, you usually have two main sources of tax liabilities: capital gains and dividends. Capital gains is the tax owed on the sale of an asset (usually stock). You can minimize capital gains by utilizing a tax deferred account like a Roth IRA, or you can try to lower the total gain by selling a stock you may have lost money on.
Dividends are income you earn from holding a stock. There are two types: qualified and non-qualified. Qualified dividends are dividends paid on shares you’ve held for over a year, and they are taxed at a lower rate than non-qualified, which are taxed as ordinary income.
If you sell items, whether online or offline, you will owe tax on your profits. You would need to file a Schedule C, which allows you to input your total sales as well as any costs of doing business. At the bottom of the form, you will see your net profit which you will pay self-employment tax on, as well as regular taxes.
It is important to make sure that you get all the tax deductions for your business expenses possible, especially if you have an online business like selling on eBay or Amazon. That is the best way to minimize your potential tax liability.
Just like small business taxes, you will owe tax on the profits from your rental property. The big difference, however, is that with rental property, you can depreciate the value of the property and claim that as an expense. As a result, you could potentially have a property that is cash flow positive, but on paper you have a loss, which will save you on taxes in the end. That is why a lot of investors like rental property as an asset.
Readers, what other certainties are there in life? Do you have any other tips for dealing with death and taxes?