By: Amy Collett
What if you could earn money while you're reading this article? If this sounds appealing to you, you should know more about passive income. With passive income, freelancers can have extra cash coming in without working overtime. How? The Cannon Courier has helped put together a few resources and tips to answer your most pressing questions.
What is passive income?
It may help to begin with a succinct definition of the phrase "passive income," especially if you've never looked into the concept before. In short, passive income is any sort of income generated through a channel or enterprise in which you are not an active participant. While you may own the source of income, like a rental home, you don't have day-to-day responsibilities.
How can I earn passive income?
Now, passive income may be sounding pretty good. After all, who wouldn't want to earn income without putting in a ton of effort? It may even sound too good to be true, but we promise you it isn't! There are plenty of ways you can start earning this sort of income to fortify your own finances. One such example is to open an ecommerce shop.
Dropshipping businesses are just the type of ecommerce store where you can make extra cash without a lot of extra time or upfront costs. Getting started is pretty simple, but you may need some help marketing your business. That's why ecommerce marketing services are highly recommended. You can find experienced consultants via freelance boards like Upwork.
Need a few more suggestions? Here are some other ways to generate passive income:
Start getting paid for referral links and leads.
Consider starting your own digital news site.
Get involved with short-term investments.
What about owning real estate?
Yes, owning an investment property is another savvy way for entrepreneurs to maximize their passive income. It should be noted, however, that investing in real estate does require quite a bit of upfront investment. Obviously, you need to buy a home, but you will also need to put some money into getting that home in shape, either as a rental or to sell it for top dollar.
If you want that investment to be profitable, you also need to do a lot of research and reading before you make such a major decision. Check out rental statistics in your preferred area and look into the local real estate market while you're at it. You should be able to buy your first property below market price and to charge at least 1% of the total value each month.
Another perk to using real estate as a passive income source? You could end up saving quite a bit on your taxes. Landlords can take advantage of several credits and incentives that can lower their annual tax bill and offset preparation and/or maintenance costs, so look into these.
How is other passive income taxed?
The answer depends on what your source of passive income is, but even if you're just earning income as a freelance worker, it pays to know your tax responsibilities. In this case, or if you use any other freelance channels to generate income, you will need to pay self-employment tax. However, you may be able to reduce the amount with credits.
You'll also be glad to know that some forms of passive income are not considered taxable by the IRS. Because rules and stipulations can be complicated, you may want to consult a certified accountant or tax professional when filling out your first return with passive income.
Really, what could be better than making extra income without paying extra taxes -- or better yet, without putting additional constraints on your busy freelance schedule? Passive income can help check both of these boxes and achieve financial stability. Do your own research and see if passive income is right for you.
The Cannon Courier has been a trusted news source in Tennessee for over 133 years. Subscribe here.