One smart move that can help guarantee you a lifetime of stable, sustainable finances is to develop more than one stream of income. For most people, this means adding to your regular income by turning a side hobby into a small business, making an idea into a real product, buying investment real estate, or taking advantage of the gig economy.



But while you can get great financial benefits, you'll also have to deal with a few tax consequences. To help you avoid tax problems or unexpected bills, here are five of the most common tax issues you may have to overcome when setting up multiple streams of income. 

1. More Tax Forms

If you've always had just a salaried or wage-earning job, you may be surprised to find out about all the new tax forms you'll have to complete.

Starting as a sole proprietor? You generally must complete Schedule C. Becoming a landlord? It's Schedule E. Incorporating your business? You'll be responsible for both individual tax forms and corporate tax forms. Investment income? That's on Schedule D. Starting more than one business entity? You may have to file separate schedules for each. 

2. Self-Employment Taxes

When you go to work for yourself — as an independent contractor or gig worker, for instance — you're likely going to be subject to an unfamiliar tax: the self-employment tax. The self-employment tax covers your Social Security and Medicare tax contributions on income not subject to FICA taxation.

The self-employment tax can wreak havoc with many new entrepreneurs because it may not be covered by your tax withholding from other sources of income. In addition, some types of tax credits do not apply to this tax. And finally, because you are both employer and employee, you pay the full amount due from both. 

3. Tax Withholding Issues

The tax withholding system is designed to allow taxpayers to pay their annual tax bills via paychecks throughout the year. But if you have more than one form of income — and particularly any income from which withholding is not possible — finding the right target amount becomes more difficult. Landlords, entrepreneurs, and gig workers often have to calculate and make estimated tax payments on their own. 

4. Keeping Things Separate

Reporting income and expenses accurately becomes more complex when you have more than one source. Business expenses generally must be claimed against the related income rather than personal income. This involves a new level of careful tracking and bookkeeping and a learning curve to achieve it.

If you have more than one side income, it can get even more challenging. A landlord, for example, may need to not only track expenses for their rental work but also which unit the expenses are for. Writing your first novel and consulting in your field? These income sources are different enough to likely call for separate expenses with separate tax forms. 

5. Higher Risk of Audit

There is no clear-cut list of red flags for IRS auditing, but certain activities increase your chances. These activities include earning a higher overall income, being self-employed, claiming certain losses, and failure to report all your income. Any of these can happen to someone who starts a secondary income source, especially when they're new at it. So you'll want to be careful to file everything accurately. 

Where to Start 

The benefits of setting up multiple sources of income for the long term outweigh the downsides, but it's important to minimize potential problems. An experienced accountant can help. Bliss & Skeen CPAs are ready to assist you no matter what type of side opportunity you want to create. We offer help with everything from setting up a business entity to maintaining the books to filing your taxes. Call today to get started.