Today’s market can be volatile, and there are many good reasons to diversify ways of generating income. To consider the tax benefits of multiple income streams, first, let’s look at the general reasons to have more than one source of income:
Income Security
It’s always possible for a primary job to disappear, either due to dissolution of the hiring company or to layoffs. With the internet comes many opportunities to start a business or to work remotely for any number of companies. In the event of losing one job or income stream, having others can stem the loss of income until the primary one is replaced.
Retirement
Pensions are a thing of the past, so individuals need to be proactive about their future. Even existing government pensions are having difficulty being funded. Depending on one retirement source is no less dicey than relying on one income source. Having multiple income streams can translate to having more than one dedicated retirement source.
Social Security
It is no longer viable to rely on social security as a future income source, especially for those younger members of the workforce. It has been estimated that social security may be depleted sometime between 2033 and 2037.
Debt management
It’s easy for anyone to run into debt. Whether it’s from unexpected medical bills, previous unemployment, car payments, credit cards or your mortgage, debt can function like a ball and chain. Extra income streams can be funneled into paying off debt, making future finances far more stable.
Long-term wealth
A side job, property rental, or extra online work can independently accumulate to build sustainable long-term wealth. Over time, the extra work might even develop into a new full-time income with more flexibility, or simply be more enjoyable than working for another company. Combining these additional income streams is easier when you develop work flexibility.
Ability to take risks and pursue new opportunities
When you feel tied to a particular job to pay your bills, it can be tougher to be open to new opportunities, take high pay-off risks or to pursue dreams or business ideas. Knowing you have more than one income source can help you feel the freedom to spread out a bit.
Keep your values intact
More financial choices also means more personal and business choices. You’ll have more freedom to be choosey about what business you will or won’t accept, especially if a job might conflict with your values or beliefs in any way.
Available cash
There are sometimes benefits to keeping cash on your person. Many establishments, including gas stations, give a discount for cash when they don’t have to pay processing fees for credit or debit cards for customer purchases. Extra cash is clearly easier to have around on hand with an additional income source.Specific Tax Benefits
Home jobs, rental property income, and online businesses have a benefit available from a tax perspective. The 2017 Tax Cuts and Jobs Act can provide up to a 20% deduction on net business income from sources other than employment that are reported on your individual tax return. There are caps and details to follow for this exception, so make sure you hire professionals who can help you keep up with these changing tax laws. They can truly benefit your business.
Myrick CPA can help you sort out all the many considerations that may come up regarding a diverse portfolio, including tax ramifications. Allow us to help you claim every benefit due you while using multiple income streams.