Understanding passive income tax advantages is an important part of learning how to create wealth. If you want to avoid as much taxation as possible, passive income is a good way to do so. Here are a few of the tax advantages that come with passive income.
Avoid Social Security and Medicare
When you make money either in a job or on a self-employed basis, you have to pay Social Security and Medicare taxes. When you are self-employed, you have to pay 15.3% of your income on these taxes. When you are employed, your employer pays half of this tax for you. When you earn money on a passive basis, you are not going to have to pay these taxes. You will have to pay other taxes, but these two can be avoided.
One of the most common types of passive income is rental payments. When you own rental property, you are going to get some nice additional tax advantages in the form of depreciation. When you own rental property, the IRS allows you to deduct depreciation on your property. This allows you to take a nice tax deduction from the income that you earn in rent.