Know what tax documents you'll need upfront Get started. Learn what education credits and deductions you qualify for and claim them on your tax return Get started. The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice.
Skip To Main Content. Capital gains aren't just for rich people Anyone who sells a capital asset should know that capital gains tax may apply. It includes not only the price of the item, but any other costs you had to pay to acquire it, including: Sales taxes, excise taxes and other taxes and fees Shipping and handling costs Installation and setup charges In addition, money spent on improvements that increase the value of the asset—such as a new addition to a building—can be added to your basis.
In most cases, your home is exempt The single biggest asset many people have is their home, and depending on the real estate market, a homeowner might realize a huge capital gain on a sale. The good news is that the tax code allows you to exclude some or all of such a gain from capital gains tax, as long as you meet three conditions: You owned the home for a total of at least two years in the five-year period before the sale. You used the home as your primary residence for a total of at least two years in that same five-year period.
You haven't excluded the gain from another home sale in the two-year period before the sale. Length of ownership matters If you sell an asset after owning it for more than a year, any gain you have is a "long-term" capital gain. This difference in tax treatment is one of the advantages a "buy-and-hold" investment strategy has over a strategy that involves frequent buying and selling, as in day trading.
People in the lowest tax brackets usually don't have to pay any tax on long-term capital gains. The difference between short and long term, then, can literally be the difference between taxes and no taxes. Capital losses can offset capital gains As anyone with much investment experience can tell you, things don't always go up in value. Business income isn't a capital gain If you operate a business that buys and sells items, your gains from such sales will be considered—and taxed as—business income rather than capital gains.
The money you pay out for items is a business expense. The money you receive is business revenue. The difference between them is business income, subject to employment taxes. Got investments? Revenue sharing takes many different forms, although each iteration involves sharing operating profits or losses among associated financial actors.
Sometimes, revenue sharing is used as an incentive program—a small business owner may pay partners or associates a percentage-based reward for referring new customers, for example. Other times, revenue sharing is used to distribute profits that result from a business alliance. The practical details for each type of revenue sharing plan are different, but their conceptual purpose is consistent, using profits to enable separate actors to develop efficiencies or innovate in mutually beneficial ways.
It has become a popular tool within corporate governance to promote partnerships , increase sales or share costs. Private businesses aren't the only ones that use revenue sharing models; both the U. ERISA establishes standards and implements rules for fiduciaries—or investment companies—to follow in an effort to prevent misusing plan assets. Standards can include the level of participation needed by employees and the funding of retirement plans.
ERISA allows revenue sharing for retirement plan sponsors so that a portion of earned income from mutual funds would be held in a spending account.
The funds are used to pay for the costs of managing and running the k plans. The amount of money to be allocated and deposited into the revenue-sharing accounts are stipulated in the revenue-sharing agreement. The fiduciary must notify investors of how the revenue is spent, which helps to provide transparency. When different companies jointly produce or advertise a product, a profit-sharing system might be used to ensure that each entity is compensated for their efforts.
Several major professional sports leagues use revenue sharing with ticket proceeds and merchandising. For example, the separate organizations that run each team in the National Football League NFL jointly pool together large portions of their revenues and distribute them among all members. Various kickers and stipulations can be added to revenue sharing agreements.
If the NFL season, for example, got extended from 16 to 17 games in the coming years, the players would receive additional revenue or a kicker if advertising revenue from T. In other words, revenue sharing agreements can include percentage increases or decreases in the future depending on performance or specific pre-set metrics. Revenue sharing can also take place within a single organization. Operating profits and losses might be distributed to stakeholders and general or limited partners.
As with revenue sharing models that involve more than one business, the inner workings of these plans normally require contractual agreements between all involved parties.
The growth of online businesses and advertising models has led to cost-per-sale revenue sharing, in which any sales generated through an advertisement being fulfilled are shared by the company offering the service and the digital property where the ad appeared.
There are also web content creators who are compensated based on the level of traffic generated from their writing or design, a process that is sometimes referred to as revenue sharing. Participants in revenue sharing models need to be clear about how revenue is collected, measured, and distributed.
The events that trigger revenue sharing, such as a ticket sale or online advertisement interaction and the methods of calculation are not always visible to everyone involved, so contracts often outline these methods in detail.
ETFs are investment funds that hold assets such as stocks, commodities and bonds, but they trade like stocks. Here are some of the best ETFs to choose from. Another key risk is that stocks or ETFs can move down significantly in short periods of time, especially during times of uncertainty, as in when the coronavirus crisis shocked financial markets. Economic stress can also cause some companies to cut their dividends entirely, while diversified funds may feel less of a pinch.
Creating an app could be a way to make that upfront investment of time and then reap the reward over time. Your app might be a game or one that helps mobile users perform some hard-to-do function.
Once your app is public, users download it and you can generate income. Opportunity: An app has huge upside, if you can design something that catches the fancy of your audience. For example, you might run in-app ads or otherwise have users pay a nominal fee for downloading the app. Risk: The biggest risk here is probably that you use your time unprofitably. If you commit little or no money to the project or money that you would have spent anyway, for example, on hardware , you have little financial downside here.
The popularity of apps can be short-lived, too, meaning your cash flow could dry up a lot faster than you expect. A REIT is a real estate investment trust , which is a fancy name for a company that owns and manages real estate. REITs have a special legal structure so that they pay little or no corporate income tax if they pass along most of their income to shareholders. Opportunity: You can purchase REITs on the stock market just like any other company or dividend stock.
Like any stock, the price can fluctuate a lot in the short term. REIT dividends are not protected from tough economic times, either. So your passive income may get hit just when you want it most.
A bond ladder is a series of bonds that mature at different times over a period of years. The staggered maturities allow you to decrease reinvestment risk, which is the risk of reinvesting your money when bonds offer too-low interest payments. Opportunity: A bond ladder is a classic passive investment that has appealed to retirees and near-retirees for decades. For example, you might start with bonds of one year, three years, five years and seven years. In a year, when the first bond matures, you have bonds remaining of two years, four years and six years.
You can use the proceeds from the recently matured bond to buy another one year or roll out to a longer duration, for example, an eight-year bond.
Risk: A bond ladder eliminates one of the major risks of buying bonds — the risk that when your bond matures you have to buy a new bond when interest rates might not be favorable. Bonds come with other risks, too. While Treasury bonds are backed by the federal government, corporate bonds are not, so you could lose your principal if the company defaults. And if overall interest rates rise, it could push down the value of your bonds. Because of these concerns, many investors turn to bond ETFs, which provide a diversified fund of bonds that you can set up into a ladder, eliminating the risk of a single bond hurting your returns.
Investing in a high-yield certificate of deposit CD or savings account at an online bank can allow you to generate a passive income and also get one of the highest interest rates in the country.
So investing in a CD or savings account is about as safe a return as you can find. And that return can pale in comparison to inflation, which hit mid-single digits in , hurting the real purchasing power of your money. Opportunity: You can list your space on any number of websites, such as Airbnb, and set the rental terms yourself. Tenants may deface or even destroy your property or even steal valuables, for example. You may be able to earn some extra money by simply driving your car around town.
Contact a specialized advertising agency, which will evaluate your driving habits, including where you drive and how many miles. Agencies are looking for newer cars, and drivers should have a clean driving record.
Drivers can be paid by the mile. Risk: If this idea looks interesting, be extra careful to find a legitimate operation to partner with. Many fraudsters set up scams in this space to try and bilk you out of thousands. Are you an expert on travel to Thailand? A maven of Minecraft? A sultan of swing dancing? Take your passion for a subject and turn it into a blog or a YouTube channel, using ads or sponsors to generate your income.
Find a popular subject, even a small niche, and become an expert on it. Opportunity: You can leverage a free or very low cost platform, then use your great content to build a following.
Then draw sponsors to you. Power tools? Mechanics tools and tool box? Tents or large coolers? Look for high-value items that people need for a short period of time and where it might not make sense for someone to own the item. Then put together a way for clients to discover your inventory and a way for them to pay for it.
Do people suddenly want a tent for weekend camping when the weather gets warmer or cooler? Figure out where the demand is, and then you could even go buy the item, rather than having it right on hand.
In some cases you might be able to recoup the value of the item after a few uses. If you have design skills, you may be able to turn them into a money maker by selling items with your printed designs on them.
Businesses such as CafePress and Zazzle allow you to sell items such as T-shirts, hats, mugs and more with your own designs.
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