The debate about whether to diversify your income or remain specialized continues, but the facts are clear. Almost half of Americans have more than one income source, and multimillionaires typically maintain at least seven. The logic is straightforward: multiple income streams offer options and contribute to financial security.

Once you decide to pursue multiple revenue sources or already have them, it’s essential to focus on taxes and compliance. Even more important is planning ahead to establish a strategy and save for taxes well in advance. Avoid leaving this to the last minute.

Step 1: Treat each income stream like a business

Various income activities—whether from a W-2 job, freelance or contract work, consulting, property rentals, or trading stocks and assets—each come with unique tax regulations.

For instance, you wouldn’t report Airbnb income under your payroll. Initially, setting up the right legal entity, such as a single-member LLC, S-Corp, or C-Corp, is crucial. Choosing correctly can greatly lower your tax liability. A building contractor with multiple income sources might gain advantages by switching from an LLC to an S-Corp, possibly saving up to $20,000 in taxes.

For property owners renting out their properties, it’s beneficial to separate expenses. This can significantly enhance deductions and allows for faster depreciation write-offs, enabling you to hold onto more cash now rather than over two decades.

If you’re selling one or more properties, consider utilizing a 1031 exchange to defer capital gains taxes by reinvesting your profits into another investment.

Step 2: Pay taxes as if your life depended on it

This year, you cashed in on consulting, bonuses, stock options or a side gig. Think ahead, because you don’t want April to bring an unexpected tax bill that devastates your cash flow. That’s the reality for many who ignore quarterly taxes.

So, set aside 25 to 30% of every non-W-2 dollar. Track earnings, make quarterly payments and avoid penalties or fines or both. Vendors accept payments quarterly. You should treat IRS installments the same way.

Step 3: Track your deductions all year round

Most people wait until March, then frantically search through their emails for receipts and invoices. Not a good idea. Start thinking about taxes in July, when you can make smart, sensible and timely moves. If you are a freelancer or contractor, you may deduct expenses such as your home office, internet bill and travel to meetings with clients, including business lunches.

Please don’t become the entrepreneur who misses a $3,000 gasoline deduction because they didn’t track their mileage to all those meetings and lunches. There’s no need to go to extremes, either, so don’t try to claim dog grooming or any other suspicious “business expense,” as it will raise red flags.

“The optimal tax strategy isn’t always about pushing every possible benefit to its limit — it’s often about creating a framework that allows for consistent, long-term, justifiable tax efficiency,” said George Dimov, CPA, who helps professionals navigate the complex tax and planning system.

It’s a good idea to maintain all your records in a spreadsheet or app to log expenses as they happen, and you’ll thank yourself when tax season arrives.

Step 4: Expats, don’t miss these tax breaks

If you are a US citizen earning abroad, operating a business from Thailand, or consulting for clients in Europe, taxes can become overwhelming. Tax law has a provision that allows approximately $120,000 of foreign-earned income to be excluded from US taxes. Be sure to check this number annually, as the exact amount changes frequently.

The foreign tax credit can also save you from paying taxes twice if you are taxed overseas. However, you must report all relevant information, including foreign businesses, bank accounts and even small investments. There are fines of about $10,000 for failing to report a foreign bank account.

Research as much as you can about international taxes or consult an expert who knows the subject and can save you time, trouble, and money.

Bottom line: multiple streams call for multiple planning layers

More income streams mean more options, but also more tax complexity. Success lies in structure, timing, and ongoing management. Structure your entity to match your objectives. Pay quarterly. Plan mid-year. Track everything. However, taxes don’t have to be a nightmare.