What Is Ordinary Income and How Is It Different From Earned Income?

Ordinary Unearned Or Income Income? Understand How Your Income 1 Is Treated for Tax Purposes Ordinary Income - profits and earnings that come from operating your business Unearned Income - money you receive from elsewhere like interest received, rental income, investments, etc. 2 Earnings of Small Business Owners in the U.S. 2 Approximately 80% of businesses are non-employer businesses. 43% of full-time businesses had estimated annual sales of under $50,000 in 2020. 27% of full-time businesses had estimated annual sales of over $200,000 in 2020. On average, business owners with less than five years of experience earn about $49,000 a year. Business owners with up to 10 years of experience earn about $70,000 per year. Understanding Your 3 Ordinary Income Also known as earned income, ordinary income includes: Income from your own business Money from freelance or contract gigs %24 Salary, commission, tips or bonuses from an employee-based job Tax Suggestions for 4 Ordinary Income Set up an S Corporation or an LLC as an S Corporation to avoid self-employment tax on your distributions and reduce your taxable income on your salary. Understanding Your Unearned Income Also known as passive income, unearned income includes: Investment and retirement income from stocks, bonds, dividends and other sources Real estate and rental income Social security and similar payments Tax Suggestions for Unearned Income TAX Unearned income will be included in your adjusted gross income, but you will not typically pay self-employment tax on passive, unearned income. incfile References https://www.businessknowhow.com/money/earn.htm https://www.businessknowhow.com/money/earn.htm https://www.businessknowhow.com/money/earn.htm https://www.freshbooks.com/hub/startup/how-much-does-small-business-owner-make https://www.freshbooks.com/hub/startup/how-much-does-small-business-owner-make %24 %24 %24