Passive income
Types of income
Types of income
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Passive income is often derived from work that one does not personally do. Stock\-based [dividends](/wiki/Dividend "Dividend"), for example, are typically based on regular business operations by real employees who are paid a salary for real work. But these dividends still serve as a passive income for stockholders, as the stockholder has done no physical work for this income. Rental income, on the other hand, does require physical labor in the form of managerial and [custodial](/wiki/Cleaner "Cleaner") duties, but these can also be outsourced for minimum wage. This can allow the owner to receive a passive profit from their property, if renters are willing to pay more than the cost of upkeep and tax.

Active income, on the other hand, is [earned income](/wiki/Earned_income "Earned income") including all taxable income and wages the earner receives for working. Active income includes wages, self\-employment income, and material participation in an [S corporation](/wiki/S_corporation "S corporation") or partnership. In other words, active income refers to income earned by performing a service or some kind of work. Income from business is considered active in case that the owner satisfies the requirements for material participation (which is based on many factors, mainly on hours worked).

Portfolio income is derived from investments such as dividends, [interest](/wiki/Interest "Interest"), [capital gains](/wiki/Capital_gain "Capital gain"), and some [royalties](/wiki/Royalty_payment "Royalty payment").

[Leveraged](/wiki/Leveraged "Leveraged") income is labor invested in a product that can be sold indefinitely in the future, e.g., writing a e\-book or producing a video. This is sometimes called passive income, although the process of creating the product requires substantial work.

Types of income are defined differently among the states and countries and can be taxed differently, depending on the law at the time. For example, portfolio income is often taxed at lower rates than active income in the USA.


Does rental income require physical labor?