But it can be difficult to figure out the rules when you earn money from a source outside of your day job.
Here are tax questions to expect when acquiring new income sources.
1. What is my Adjusted Gross Income?
When you earn money, the IRS expects to see a copy of your 1040 Form (the adjusted gross income). Your "adjusted gross income" is the sum of all your income from sources outside your day job.
This could include freelance work, rental property, revenue from a business you run, or investments. This income is added to your day job income and taxed accordingly.
2. What are my taxes on passive income sources?
Whether you have investments or a side business, the money you earn from either can be considered "passive income." Passive income is taxed at a lower rate as compared to regular income.
This is because people who work for themselves face difficulty in claiming certain tax deductions. Consider a tax planning service to not double-tax your passive income.
3. What is my self-employment tax?
If your business earns more than $400, you owe self-employment tax. This is a type of payroll tax that funds Social Security and Medicare.
The amount of your tax depends on the amount of your income, but it must be filed every year. Your side gig can lead to a large tax bill at the end of the year.
Self-employment taxes are due in addition to taxes paid by an employer and can become significant if you have a high income from self-employment. You can learn more about self-employment taxes on the Social Security website.
4. What is my capital gains tax rate?
Money earned from selling property or an asset for a price higher than the purchase price is considered capital gains income. It is taxed at different rates depending on how long you have held the asset (the longer you hold, the lower the tax rate).
For example, if you sell a stock you have owned for one year, it will likely be taxed at a 15% rate, based on your total income. If you sell a stock you have owned for one day, it will be taxed as if it were normal income.
5. What is my tax on investments?
When you invest in a business, it is considered an asset for tax purposes. Taxes are due to the capital gains that you made from your investments. Capital gains are split up into two parts: short-term and long-term.
other related articles of interest:
They function largely the same as the capital gains mentioned above, but it’s always worth doing further research if you have questions.
Tax questions sources can seem overwhelming, but it is important to know what taxes you will owe and how to plan for them. The questions listed in this post are only the tip of the iceberg when it comes to minimizing your taxes.
Consult with a financial professional to discuss the best ways for you to save money on taxes.
Image Credit: tax questions to expect by envato.com
end of post … please share it!
end of post idea for home improvement
view and analyze home improvement ideas at our LetsRenovate center
Helpful article? Leave us a quick comment below.
And please give this article a rating and/or share it within your social networks.
