A few days ago I was talking to a friend who was out of work, and considering several great opportunities. This reminded me that there are really many ways to earn an income today, and many financial experts believe in the years to come more people will have several income streams at the same time. Having several sources of income help to not have all of our income eggs in one basket, and makes life more interesting. Here is a quick review of some of the opportunities that you have:
- Employment (W2) Provides an earned wage, or referred to as ‘people at work,’ is the most obvious way to earn an income. If you are an employee of a company, you are paid an hourly wage or salary. Your employer bears all the risk of running the enterprise, and earning enough money to make payroll. You contribute to the employers bottom line by your hard efforts. Your employer may also provide you with health, life and other benefits. In addition they pay their percentage of the necessary employer taxes for FICA (Social Security and Medicare), FUTA (Federal Unemployment Tax), and SUI (State Unemployment Tax), which amount to. Not to mention worker’s compensation insurance premiums. The FICA tax rate for employees is 7.65% (OASDI 6.2%, Medicare 1.45). The taxable wage base for OASDI is $110,100 for 2012, which means your income above this figure is not taxed OASDI, except for Medicare. The Tax Relief extension temporarily reduced OASDI from 6.2% to 4.2%.
- Independent Contractor (1099) usually is when a company engages someone under contract to provide a service for them. 1099 workers are not provided with any other benefits. For example an appliance retailer may pay independent trucking contractors to deliver and install appliances for a fee. 1099 workers are responsible for paying all of their own employment taxes, which are 15.3% (OASDI 12.4%, Medicare 2.9%). The Tax Relief extension temporarily reduced OASDI from 12.4% to 8.4%. Many new independent contractors are surprised to find that they have to pay 15.3% (temp 11.3) versus only 7.65% (temp 5.65) if they were an employee.
- Businesses produce and sell products or provides a service for a fee. This could involve farming, mining, manufacture or any type of service such as office cleaning that people are interested to have. Businesses can be set up a number of ways, including sole proprietorship, partnership, regular C corporation, sub chapter S corporation and LLC or limited liability corporation.
- Sales can come from businesses that do not manufacture a product or provide a service, but they buy products from those that do such as agriculture, gold, property, manufactured goods, and sell it to someone else at a higher price.
- Brokers are similar to sales, they may not take possession of the product to sell, but they connect the buyer and seller, and they receive a commission for doing so. Sometimes they sell contracts for the future delivery of the product (futures contract).
- Stock (equity) Investors buy interest in businesses that sells or makes things or provides a service, and earn part of the profit either through dividends or increase in value.
- Real Estate Income earners buy property and rent it out to individuals or business. Real estate investors receive tax deductions, and are responsible for maintenance and collection of rents.
- Bond (debt) Investors essentially loan money to others who want it to buy something, or fund a business or government, and earn interest on the money until it is all returned.
- Royalties are income paid to creative people who get patents for things they invent, and songs or books they write to mention a few.
- Network Marketing can come in many forms, such as through MLM – Multilevel marketing, website network marketing, and affiliate sales.
- Pension or Defined Benefit Retirement plans pay guaranteed income to long-term employees of companies or governments. The benefit is determined by income and years of service. Social Security retirement income could be in this category too.
