Passive income: I do not want to go back to working 50 plus hours a week, ever.

“When I got laid off from my job in 2015, I promised myself that I’d do whatever it took to become my own boss and never go back to a full-time job.”

I do not want to go back

I do not ever want to go back

How did people do that for 40 years?

Day in and day out?

That’s not living

That’s not life

That is not why we were put on the earth

Working 50 to 70 plus hours a week?!

Never seeing your family

One day (maybe) to run errands

One day to rest or church

Missing your kids growth

Trusting their growth to strangers

Hoping the strangers are not woefully ignorant, racist, prejudice, quick-tempered or some other negative attribute

Working 50 plus hours and barely getting by

Employers make you feel like your begging for time off or that you are lazy or sickly

I do not want to go back


Impatient drivers fouling my mood, crashes, car pollution

Always on someone else’s schedule instead of following my body’s schedule,

my mind’s schedule

Rushed eating, not eating, garbage eating

The mentality has not changed since slavery-cheap, exploited labor

Fighting for a livable wage

Being painted as lazy for wanting more out of life than sacrificing everything to make another a billionaire.

It is time to rethink,



and unapologetically forge ahead.

“Drown decided it was time for him to quit his $15-per-hour job after ice storms pummeled West Virginia in February. According to Drown, he was expected to show up to work despite icy road conditions. When the ice melted, roads began to flood.”

“Drown is one of the many workers responding to companies’ recent complaints about hiring struggles with a simple demand: Improve working conditions, or pay us more.”

What employers and politicians do not seem to realize is even before, but exasperated by the pandemic lockdown, employees’ are rejecting the traditional work environment. People are rethinking and reevaluating what is important in life. Many employers in the U.S. were slow to adapt to new work models such as working from home, adoption of applications (apps) and artificial intelligence, on premise daycare, and flexible work hours.

We have all heard of the generous benefits received by employees in other countries. Businesses also did not anticipate the cultural work differences between retiring Baby-Boomers and Gen-Z. Restaurants did not anticipate the shift by their employees from close-contact, low-wage work to Amazon or other companies that thrived during lockdown and offer higher pay and benefits.

The world-wide pandemic forced businesses in the U.S. to adapt to new ways to conduct business. Many businesses seemed to think these were temporary measures, making empty promises to employees that they would be open to making these changes permanent. Now these same businesses are reneging on their promises, calling their employees to return to the office and receiving pushback.

Businesses did not seem to realize how the lockdowns would affect the mindset of employees. Many employees realized the old work-life balance was untenable and are looking for new ways to earn income. Employees want flexibility, work-life balance, higher pay, benefits. People just want to enjoy their lives with minimal stress.

Quarantine has given us all time and solitude to think—a risk for any individual, and a threat to any status quo.

Relieved of the deforming crush of financial fear, and of the world’s battering demands and expectations, people’s personalities have started to assume their true shape. And a lot of them don’t want to return to wasting their days in purgatorial commutes, to the fluorescent lights and dress codes and middle-school politics of the office. Service personnel are apparently ungrateful for the opportunity to get paid not enough to live on by employers who have demonstrated they don’t care whether their workers live or die.

These same businesses now complain they cannot find workers and blame enhanced unemployment benefits even though this trend has been occurring for the last few years.

Top 4 Reasons Why Employers Can’t Find Skilled Workers (2019)

These conditions in the workplace have increased interest in alternate, additional income streams such as passive income. One appeal of passive income is its tax treatment. Let’s review the basic concepts.

Types of Passive Income:

  • REAL ESTATE – The most popularly written about passive income stream. From an accountant’s perspective (my perspective), one who has prepared 1,000’s of tax returns, this passive income stream requires the most effort. This works well for highly motivated, organized individuals. The optimal situation is having a management company that handles everything tenant related including the collection of rent, repairs, finding prospective tenants, evictions, late fees, preparation of monthly and yearly statements.
    • Some individuals do not mind handling all tenant-related items themselves but for most this is a chore and if the record-keeping is unorganized, it will delay the preparation of the tax return (see Things Your CPA Will Not Tell You).
    • Many of my real estate clients rely on rental income as their sole source of income. Their tax returns usually reflect a loss which carryforwards to the next year. (Passive activity income losses can only be taken if there is another source of passive activity income, for example Schedule K-1 profits to counter the loss). Subject to Passive Activity Rules.
    • I find that commercial real estate is less of a hassle but requires a higher initial investment than residential real estate.
    • AiRBnb – short-term rentals. I wish people that offer these short-term rentals would align their mind-set with that of a hotel owner – organization is key to tracking income and expenses. Passive Activity Rules may not apply.
    • Tax treatment – Subject to maximum federal capital gains tax rate from any portion of the gain (sale) on commercial real estate. For 2018 tax reporting, at a top capital gains rate of 25% and might be subject to an additional 3.8% tax for net investment income.
  • INTEREST INCOME– this includes high-interest savings accounts, money market savings, certificate accounts (CDs). The optimal situation is compounding interest. When you deposit money in a savings account or a similar account, you will usually receive interest based on the amount that you deposited. Compound interest is interest that you earn on interest. › banking › what-is-compound.
    • While a $100,000 deposit that receives 5% simple annual interest would earn $50,000 in total interest over 10 years, the annual compound interest of 5% on $10,000 would amount to $62,889.46 over the same period. If the compounding period were instead paid monthly over the same 10-year period at 5% compound interest, the total interest would instead grow to $64,700.95.
    • Tax treatment – Taxed as ordinary income depending on your tax bracket.
    • Credit unions – I would recommend opening an account at a credit union. Credit unions offer various interest accounts, usually pay higher interest rates than ordinary banks, and offer low fees.
  • ROYALTIES -payments received for original works such as books, films, articles, poems, trademarks, trade names, service marks or copyright. I recently prepared a client’s tax return who receives $20,000 annually from an internet service provider for the use of their land for an internet tower.
  • STOCK DIVIDENDS – monthly, quarterly.
    • Notice that I limited investing in the stock market to stock dividends. To be a successful stock investor requires a lot of work. My clients that are successful investors dedicate many hours every day. This is their full-time job (i.e., day traders) and not a passive income stream. A successful investor needs to invest a lot of time in researching stocks (e.g., Options, ETFs, Futures, Swaps) before purchasing. To achieve success, an investor should begin by researching a company’s financial statements, the competition, reading the latest industry news, company news, CEO news, innovations, trends, . (Filings & Forms
  1. I began by investing in stock dividends by emulating Warren Buffett. First, I reviewed his holdings.
  2. Next, I reviewed a list of Dividend Aristocrats. “A Dividend Aristocrat is a company in the S&P 500 that has paid and increased its base dividend every year for at least 25 consecutive years.”
  3. What is great about today’s market is there are apps that allow you to invest in stocks partially (CashApp, Stash). Whereas in the past, a substantial amount of money and a financial advisor was required to invest. So, this is where I started. I made an excel spreadsheet, checked the dividend yields (average 3%), checked the companies’ beta (i.e., risk assessment), industry sector, reviewed financial statements, and chose accordingly.
  • BONDS– “A bond is a long-term contract under which a borrower agrees to make payments of interest and principal, on specific dates, to the holders of the bond. Investors have many choices when investing in bonds, but bonds are classified into four main types: Treasury, corporate, municipal, and foreign. Each type differs with respect to expected return and degree of risk.”(1)
    • Treasury Bonds -sometimes referred to as government bonds, are issued by the U.S. federal government.(1) It is reasonable to assume that the federal government will make good on its promised payments, so these bonds have almost no default risk. However, Treasury bond prices decline when interest rates rise, so they are not free of all risks.(1)
    • The U.S. Treasury issues three types of securities: “bills,” “notes,” and “bonds.” A bond makes an equal payment every 6 months until it matures, at which time it makes an additional lump-sum payment. If the maturity at the time of issue is less than 10 years, the security is called a note rather than a bond. A T-bill has a maturity of 52 weeks or less at the time of issue, and it makes no payments at all until it matures. Thus, T-bills are sold initially at a discount to their face, or maturity, value.(1)
    • Tax treatment– Interest income from Treasury bills, notes, and bonds is subject to federal income tax but is exempt from all state and local income taxes
    • Corporate Bonds – issued by corporations. Unlike Treasury bonds, corporate bonds are exposed to default risk-if the issuing company gets into trouble, it may be unable to make the promised interest and principal payments. Different corporate bonds have different levels of default risk, depending on the issuing company’s characteristics and the terms of the specific bond. Default risk is often referred to as “credit risk,” and the larger the credit risk, the higher the interest rate the issuer must pay.(1)
    • Municipal Bonds – or “munis,” are issued by state and local governments. Like corporate bonds, munis have default risk. However, munis offer one major advantage: The interest earned on most municipal bonds is exempt from federal taxes and from state taxes if the holder is a resident of the issuing state. Consequently, municipal bonds carry interest rates that are considerably lower than those on corporate bonds with the same default risk.(1)
    • ” muni bonds generally require a $5,000 minimum investment, while corporate bonds start at $1,000″
    • Foreign Bonds – are issued by foreign governments or foreign corporations. Foreign corporate bonds are, of course, exposed to default risk, and so are some foreign government bonds. An additional risk exists if the bonds are denominated in a currency other than that of the investor’s home currency. For example, if a U.S. investor purchases a corporate bond denominated in Japanese yen and if the yen subsequently falls relative to the dollar, then the investor will lose money even if the company does not default on its bond
  • HEALTH SAVINGS ACCOUNT (HSA) -“A type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. By using untaxed dollars in a Health Savings Account (HSA) to pay for deductibles, copayments, coinsurance, and some other expenses, you may be able to lower your overall health care costs.”
  • Pros:
    • The ability to pay for medical expenses with pre-tax money.
    • The option to build retirement savings that can be used at any time without taxes or penalties.
  • COVERDELL EDUCATION SAVINGS ACCOUNT (ESA) – According to the IRS, is a trust or custodial account set up in the United States solely for paying qualified education expenses for the designated beneficiary of the account. This benefit applies not only to qualified higher education expenses, but also to qualified elementary and secondary education expenses.
    • When the account is established, the designated beneficiary must be under the age of 18 or be a special needs beneficiary.
  • OPPORTUNITY ZONES – Introduced as part of the Tax Cuts and Jobs Act.
    • economic development tool to encourage long-term investment and job creation in designated, distressed communities
    • investment encouraged by providing tax benefits to Investors that invest the amount of eligible gains into equity in Qualified Opportunity Funds
    • Taxpayers can defer and potentially reduce taxation on capital gains
    • 8,764 designated Qualified Opportunity Zones.
    • Qualified Opportunity Zones have been designated in all 50 states, including Alaska, Hawaii, District of Columbia and 5 US Territories.
  • BLOGS, TIKTOK, INSTAGRAM, YOUTUBE videos – Monetize your knowledge through monthly subscriptions, paid content.

Ma launched her channel in 2010 and has amassed multiple videos with over 1 million views. Ma broke down her earnings to Insider from the YouTube Partner Program by month.

So far in 2021, she’s grossed $32,200 from her YouTube channel.

Capital Gains Tax

As mentioned before, the appeal of passive income is any profit or gain from a sale is subject to capital gains tax. Capital assets include stocks, bonds, precious metals, jewelry, and real estate. Short-term capital gains are taxed at the same rate as your ordinary income. These are assets held less than one year before sale. Long-term capital assets are held for more than one year before they are sold. Long-term capital gains are taxed according to graduated thresholds for taxable income at 0%, 15%, or 20%. (2)

*NotePresident Biden is reportedly proposing to raise taxes on long-term capital gains for individuals earning $1 million or more to 39.6%. Added to the existing 3.8% investment surtax on higher-income investors, the tax could rise to 43.4%, not counting state taxes.

One strategy to consider if you make large contributions to charity consider donating appreciated long-term held securities (i.e., stocks, bonds, options, futures). You would get a charitable deduction for the fair market value of the securities and not have to report the capital gain/loss income (see Tax Tips).


First, what are your goals?
  1. To supplement your income – Maybe your goal is to reduce the amount of time you work for someone else, to free up time to allow you to dedicate more time working towards building your own business, or you want to spend more time with family, or traveling.
  2. To replace your W-2 income – set a goal, set a timetable, list steps to achieve goal, implement, reassess, readjust.
  3. As a strategy to move a low- risk, low interest savings account into a higher earning, higher -risk account
  4. To make your substantial, short-term income last longer – A professional athlete such as a football player may only be projected to play for 3 to 4 years. How can they make this income last for 20 years? Maybe you won a million-dollar lottery prize or some such situation where you receive a large, lump-sum of money and want to ensure it lasts for years.
  5. To save for retirement
    • Annuities – – “Annuities are contractual guarantees between you and an insurance company, either as a single deposit or multiple payments. In exchange, the insurance company follows through on the terms of the contract. Annuities grow tax-deferred until the interest is withdrawn, and payments can be taken as a lump-sum (which, although I’ve seen it, is not what I’d recommend) or through periodic distributions.” Carlos Dias Jr, Wealth Advisor
    • “As another example of growing annuities, suppose you need to accumulate $100,000 in 10 years. You plan to make a deposit in a bank now, at Time 0, and then make 9 more deposits at the beginning of each of the following 9 years, for a total of 10 deposits. The bank pays 6% interest, you expect inflation to be 2% per year, and you plan to increase your annual deposits at the inflation rate. How much must you deposit initially? Thus, a deposit of $6,598.87 made at time 0 and growing by 2% per year will accumulate to $100,000 by Year 10 if the interest rate is 6%.” (1)

How to achieve your passive income goals:

  • Monthly Example:
  • Calculate the amount of money needed per month-include monthly expenses (i.e., rent, mortgage, insurance, property taxes, utility bills, disposable income needs)
  • Calculate how much initial investment is needed to achieve your goal.
    • For example, your monthly expenses are $2,000. What mix of income streams will equal $2,000 monthly? An investment of $10,000 in monthly stock dividends that yield 3% will yield $300 monthly. Your a freelance writer, you sell a product on Instagram, you have a mix of 6 month and 12 month certificates of deposits (CD), calculate.

*Note– Never, ever, ever ever, ever put all your money in one investment (see When the Feds Raided). “My friend is starting a restaurant so I gave them $50,000 in seed money.” Restaurants have a very low profit margin as does any business in a hyper-competitive industry. I personally would never invest in anything associated with a friend or acquaintance. Speak with an accountant before you invest large sums of money. An accountant can assess the risk, historical industry profit margins, and calculate the time value of your money. Your investments should vary in risk – CDs, most bonds, annuities, HSAs are low risk investments. Stocks vary in risk – if beta equals 1.0, stock has average risk. If beta > 1.0, stock is riskier than average. If beta < 1.0, stock is less risky than average.


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(1) Ehrhardt, Brigham. Financial Management Theory & Practice, Thirteen Edition.

(2) Internal Revenue Service. No. 409 Capital Gains and Losses.” Accessed Jan. 5, 2021.

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Published by Williams Accounting LLC

Williams Accounting LLC is a Las Vegas-based accounting, tax, and financial consulting firm that works with clients to achieve the best solutions for their business.

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