How to Think About Income – The Types, Sources, and Tax Implications of Each | AWM Insights #166

We continue our series on the Multi-generational Wealth Formula. This week, we focus on income - the most common types and sources, active versus passive income, and how they are treated differently for tax purposes. The most common source is typically called Employment Income or W2 Wages. This income comes from work you do as a formal employee of a company. Athletes are paid Employment Income from the team they play for. On the non-athlete side, founders, senior executives, and employees are typically paid their salaries this way. This income can be subject to the highest tax rates.Any off-the-field income (endorsement income, etc.) is considered self-employment income, independent contractor income, or 1099 Income. Non-athletes can earn this through consulting work or other types of independent work. It is paid as though you are your own business, which has its benefits and drawbacks. There is certainly more flexibility for tax planning but more responsibility to make sure taxes due are paid on time. The last category we discuss can be broadly thought of as investment, or passive income, and there are a few different sources – interest income, dividends, and capital gains. Rental income would also fall into this category. These income types are typically generated from an investment portfolio and the tax treatment varies widely.Have questions for an upcoming episode? Want to get free resources, book giveaways, and AWM gear? Want to hear about when we release new episodes? Text “insights” or the lightbulb emoji (💡) to Brandon at (714) 504-7689 to join our new AWM Insights Network.Episode Highlights0:00 Intro0:24 A quick review of what we’ve covered in the series so far0:44 What are the different types of income & how are they taxed?1:11 Employment income or W2 Wages2:02 Self-employment income3:02 Investment, or passive, income5:47 What's the tax treatment of these sources?7:04 Benefits of capital gains and the compounding effect7:34 Text us!