Note: The below is based on US tax code. Please consult your tax advisor for further information.
Making money from dividend stocks, online money making techniques, and P2P lending, is great but you have to keep tabs on the tax consequences as well if you are using a taxable account. In other words, while it’s great to receive the passive income produced by these methods, the US government also wants their cut because you are generating extra income for yourself. Additionally, some of this income (such as dividends from REIT stocks or the income produced by Lending Club P2P lending) is considered “ordinary” (not “qualified”) income meaning it is taxed at a higher percentage rate and might produce a hefty bill come tax time.
All is not lost though as the US government does encourage and incentivize investing via “tax deferred” accounts such as a 401K or IRA. But these accounts have yearly contribution limits meaning you may not be able to generate as much tax-deferred income as you need.
What methods do you use to maximize your passive income but still keep your tax bill low? Let me know in the comments below!