Are you thinking about becoming self-employed and make passive income as regular form of income? You may be wondering what tax implications there are to being a self-employed person. In this article we’ll answer some common questions about taxes on passive income.
Passive income refers to money earned without actively working for it i.e., getting some amount of money every month. It includes things like interest, dividends, rent, royalties, and capital gains.
Do I have to pay any taxes on my business income?
If you’re self-employed, you will need to file an income tax return. This form allows you to report your net profit or loss from your business activity.
Can I deduct expenses from my business?
As a self-employed person, you can deduct certain business expenses as well as other miscellaneous deductions. These deductions are called “passive losses” because they represent money lost by the business rather than money earned by the owner.
Is it possible to get a refund when I file my taxes?
If you’re self-employed, you can deduct certain expenses related to running your own business. However, you won’t be able to claim any deductions for these expenses until you’ve actually paid them out of pocket. Once you pay those expenses, you can then take a deduction for them on your federal return.
Will I owe back taxes?
There’s no doubt that starting a new business can be expensive. That said, you should never expect to owe back taxes when you start a business. This is because the system allows you to deduct the cost of starting up your business as an expense.
How much will I need to save to start my own business?
If you’re planning on starting a business, you’ll likely need to save money before you begin. While you won’t necessarily need to put away a large sum of cash, you’ll probably need to cover things like inventory, equipment, and other expenses.