Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Find a Job
  • Home
  • Accounting, Taxation, and Reporting
  • Business Taxation

Passive Income - Explained

What is Passive Income?

Written by Jason Gordon

Updated at April 8th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What is Passive Income?How Does Passive Income Work?

What is Passive Income?

Passive income is the earnings obtained from limited partnership, rental property, or other enterprise where a person is not involved actively. This income is usually taxable, like active income. However, Internal Revenue Service (IRS) sometimes treats it differently. Portfolio income is also taken as passive income by few analysts, so interest and dividends would will also be considered passive.

Back to: Accounting & Taxation

How Does Passive Income Work?

Income is broadly categorized into three key categories: active income, passive income and portfolio income. Passive income is less used term nowadays. Colloquially, its mostly applied to define money being earned on a regular basis with no or little effort on the part of the person getting it. Popular kinds of passive income are peer-to-peer (P2P) lending, real estate, and dividend stocks. The passive income earners are usually the boosters of a work-from-home and bear be-your-own-boss lifestyle. The kinds of earnings people generally associate with this are profits stocks, peer-to-peer (P2P) lending retirement pay, lottery winnings, online work and capital gains. While these earnings well define passive income, they still are not close to the technical definition given by IRS. Passive income, being used in a technical term, is either "income from the business wherein the taxpayer does not participate materially," or "net rental income" or and in certain cases can be self-charged interest. It can be said that passive income is not salaries, investment or portfolio income."

passive income

Was this article helpful?

Yes
No

Related Articles

  • Abusive Tax Shelter - Explained
  • Flat Tax - Explained
  • Import Duty - Explained
  • Physical Presence Test - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand