Once you start to see some success, don’t be led astray by the money. While Flynn does use affiliate marketing to make money, he only ever recommends products that he has personally used and likes. He is inundated by offers to earn $50 per sale through commission on products he has never even tried. “I’m like, ‘I don’t even know you, I don’t know what this product can do, and I don’t know if this product will help my audience.’ I only use products I’ve used before, because that trust you have with your audience is the most important thing in the world.” He says if you do recommend a product for the incredible commission but your audience has a bad experience with it, your credibility will be shot.
Mike, I don’t consider the income from FS to be passive, as I’m spending time commenting to you right now. But since 75% of my traffic comes from search, the most traffic I would probably lose is 25% for probably a year. And then my search word rankings would probably slowly fade given frequency of posting new content is one of the search algo variables.
An affiliate marketer is an online salesperson who promotes products in exchange for a commission. For most of the affiliate programs, you only need to place their banners and links on your site and the system does the rest. However, you will do better if you master sales skill. It’s a vital skill in affiliate marketing. The more you are able to convince people to buy a product that will be of benefit to them, the more you will make money.
Another common way to earn passive income is to invest in real estate. This does involve some hefty investment on your part to get started, though, since real estate doesn’t come cheap. The goal is to earn enough back by renting out the property to not only cover your original investment, but to also turn a profit. Keep in mind that similar to letting your room through Airbnb, this venture may require some time and money to maintain. Plus, you will have to rely on others and tenants to keep the property in good shape.
I have to agree. Our Duplex cost us 200k initially in 1998. Over time and completely refurbishing the property with historically appropriate sensitivity, we invested another 200k or so. We just had a realtor advise us we could ask 700k for it today. It nets us 30k annually after taxes, insurance and maintenance. We still have a loan on it which I have not taken into account, that will be paid off within 5 years if we keep it. My mental drama now is, while I am quite giddy over the prospect of earning a tidy sum of profit if I sell, what then would I do to equal the ROI and monthly income this thing generates? Rents are low, they should be 4k a month and will only go up. Tempted to keep it and not sell. And while I do have some stocks, I basically suck at them. I am much better at doing properties.
If your passive activity gross income from significant participation passive activities (defined later) for the tax year is more than your passive activity deductions from those activities for the tax year, those activities shall be treated, solely for purposes of figuring your loss from the activity, as a single activity that doesn’t have a loss for such taxable year. See Significant Participation Passive Activities , later.

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If you rent property to a trade or business activity in which you materially participated, net rental income from the property is treated as nonpassive income. This rule doesn’t apply to net income from renting property under a written binding contract entered into before February 19, 1988. It also doesn’t apply to property described earlier under Rental of Property Incidental to a Development Activity .
I truly believe generating $10,000 a year online can be done by anybody who is willing to dedicate at least two years to their online endeavors. Here is a snapshot of what a real blogger makes through his website and because of his website. Roughly $150,000 a year is semi-passive income followed by another $186,000 a year in active income found through his site. Check out my guide on how to start your own blog here.
If you buy T-bills worth of N500,000 at 10 per cent discount rate, CBN will debit your account with N450,000, leaving a balance of N50,000. This means that your interest of N50,000 has been paid to you upfront. When your investment matures, you are still paid your N500,000.This shows that you were actually paid N550,000 for your investment of N500,000. (Source)
Next, you can sell things you already have and make. For example, if you’re a teacher and have some great lesson plans, Teachers Pay Teachers allows you to put up and sell your lesson plans. You need the plan for your class anyways, why not sell it? The same goes for photos you’ve taken. You don’t need to be a professional photographer, and you can sell your photos on sites like iStock.
Investing in rental properties is an effective way to earn passive income. But it often requires more work than people expect. If you don’t take the time to learn how to make it a profitable venture, you could lose your investment and then some, says John H. Graves, an Accredited Investment Fiduciary (AIF) in the Los Angeles area and author of “The 7% Solution: You Can Afford a Comfortable Retirement.”
There is a specific tax definition of passive income, known as “passive activity” to the Internal Revenue Service. Passive income is any income you make without actively working or are materially involved. The IRS defines it as any rental activity or any business in which the taxpayer does not “materially participate.” Nonpassive activities, or active activities, are businesses in which the taxpayer works on a regular, continuous, and substantial basis.
Passive income is the Holy Grail for online marketers. It's automatic. Effortless. But, not at first. In the beginning, it's grueling. I liken this to doing the most amount of work for the least initial return. However, over time, as your passive income begins to increase, your reliance on an active income plummets. That's when the real magic starts to happen.
If you have a capital loss on the disposition of an interest in a passive activity, the loss may be limited. For individuals, your capital loss deduction is limited to the amount of your capital gains plus the lower of $3,000 ($1,500 in the case of a married individual filing a separate return) or the excess of your capital losses over capital gains. See Pub. 544 for more information.
So that is where it gets a little weird too- tax classifications, which might be slightly different than the term defining how much work you do. Owning a business will always be taxed as active income. Rental properties will always be taxed as passive income. The reason being (all theoretical to an extent) is that, in theory, if the business stops selling or performing, income is lost. In theory, rental properties can continue to make money if you do no work on them. If I had a rockstar property manager who constantly handled everything about the property, I could technically do zero work and still receive income. In theory, even if the PM stopped working the property, if a tenant stayed there forever and kept sending money, you get income with no work. Not all that realistic for you to never be involved, and most certainly to succeed without a PM, but taxes assume it’s possible. Work has to continue to happen with a business for it to make income, therefore it’s active.
If a passive activity interest is transferred because the owner dies, unused passive activity losses are allowed (to a certain extent) as a deduction against the decedent's income in the year of death. The decedent's losses are allowed only to the extent they exceed the amount by which the transferee's basis in the passive activity has been increased under the rules for determining the basis of property acquired from a decedent. For example, if the basis of an interest in a passive activity in the hands of a transferee is increased by $6,000 and unused passive activity losses of $8,000 were allocable to the interest at the date of death, then the decedent's deduction for the tax year would be limited to $2,000 ($8,000 − $6,000).
Great argument for passive income but want more meat on the bone on “passive income” information. We all feel screwed by the progressive tax system. Most of us probably think our dividends and cap gains are passive. True, but the real wealth, sans ceiling, resides within more risky ventures like entrepreneurship and real estate. While appealing, I’m too busy for all that at the level I need to be for success. It took me 2 years (starting with your blog) of reading financial books and blogs before I was ready to DIY invest. Several years, 2 kids and a slamming practice later, I just don’t have the time to read up on other passive avenues. Plus, I’m pretty content with my dividend and cap gains (while they last) and would rather see patients than take a call about a rental house. Maybe when the kids grow up a bit and I scale my practice back, your ideas will fall in more fertile soil. Until then, I look forward to future posts and comments.
Qualified dividends are taxed the same as long-term capital gains. In 2018, you can earn up to $38,600 in ordinary income without being taxed on long-term capital gains or qualified dividends. If you earn between $38,600 and $425,800 in ordinary income, your long-term capital gains tax rate is 15 percent, which would also apply to qualified dividends. If you make more than $425,800, the rate is 20 percent.
If you’re a retired or disabled farmer, you’re treated as materially participating in a farming activity if you materially participated for 5 or more of the 8 years before your retirement or disability. Similarly, if you’re a surviving spouse of a farmer, you’re treated as materially participating in a farming activity if the real property used in the activity meets the estate tax rules for special valuation of farm property passed from a qualifying decedent, and you actively manage the farm.
Add Leverage (Mortgage) and you greatly increase the ROI especially from the perspective of using Rents (other peoples money) to pay down the mortgage and increase your equity in the property over time. At this point then yes price appreciation is secondary bonus and we have an arguement of how and why Real Estate can be better than Growth Stocks in some scenarios and for some investors.
3. Start as soon as possible. Building a livable passive-income stream takes a tremendously long time, largely because of declining interest rates since the late 1980s. Gone are the days of making a 5%-plus return on a short-term CD or savings account. Today, the best 12-month CD is at 2.5%, and the best money-market rate is about 1.85%, which is not bad, considering such rates were below 0.5% just a couple of years ago. Know that every $100 you save can generate at least $2.5 in passive income.
According to Derek Wagar, a Tax Partner at Fuller Landau LLP in Toronto, if an investor is considering selling certain investments at a profit in the near future, it may make sense to trigger those gains gradually over several years (to the extent possible) as the new passive income rules come into effect in 2019 (based on 2018 passive income). Spreading out gains across tax years may allow your CCPC to preserve more of its SBD limit in future years.
Income from an oil or gas property if you treated any loss from a working interest in the property for any tax year beginning after 1986 as a nonpassive loss, as discussed in item (2) under Activities That Aren’t Passive Activities , earlier. This also applies to income from other oil and gas property the basis of which is determined wholly or partly by the basis of the property in the preceding sentence.
Passive income, interest, taxable capital gains and certain rents as examples, earned by a CCPC is subject to a high corporate income tax rate of approximately 50%, a portion of which is accumulated in a notional account called the Refundable Dividend Tax On Hand (“RDTOH”). The RDTOH account is a mechanism that is used to simulate for the corporation the highest individual tax rate. In effect, the company “pre-pays” taxes to the federal government and is credited an amount in this pool. The CCPC is therefore entitled to a refund of its RDTOH of $38.33 for every $100 of dividend it pays to its shareholder, regardless of whether the dividend is sourced from the income it has generated from its active business or from its passive income. The refund is triggered at the time the dividend is paid since at this point the shareholder herself will now pay income taxes on that dividend earned. The RDTOH account is therefore used to achieve the integration at the corporate level by taxing passive investment income at roughly the top personal tax rate while it’s retained within the corporation.
In order not to succumb to that, Flynn says it’s important to know your motivation. “Passive income is important to me not just for the financial security but so I can spend time with my family,” he says. “I’ve been able to work from home and witness all my kids’ firsts. I have a one-year-old and a four-year-old, and that's what drives me and gets me pushing through those hard times and why I keep creating new products and why I want to help other people do the same thing.”

The IRS gives more specific limitations as to what it means by “material” participation. For one, it includes if you worked at least 500 hours in a year on the project or more than 100 hours when no one else works more than you. Additionally, if you do at least almost all of the work in an activity, it’s considered material involvement. Even the combination of your work in multiple significant participation activities (SPAs), if it exceeds 500 hours, counts as material participation. There are a few more criteria that would qualify a project as material. You only need to meet one to qualify.


Passive income is definitely the goal and I think you hit it on the head with the point about upfront work. That actually coincides well with most physician careers. Work hard like a resident and spend like a resident to build up an investment portfolio right away while you are young and full of piss and vinegar. It then has time to grow and be there for you as you need or want to slow down because of aging or kids etc. Plant the seeds early and then live off the crops.
If you have a spare bedroom, you can find a roommate or list the space on AirBnB for travelers. Having a roommate is the more passive of the two, as being an Airbnb host will require more work in the form of turning over the room between stays. This is a super painless way to earn $500 to $1,000 a month without much effort – you may even be able to cover your mortgage payment with this extra income!
Whether you take a “distribution” (aka free-cash-flow) in the form of a dividend, interest payment, capital gain, maturing ladder of a CD, etc, you are still taking the same amount of cash out of your portfolio. Don’t fall for the trap of sub optimizing your overall portfolio’s performance because your chasing some unimportant trait called “income”.
In 2012, even I wrote a 150-page eBook about severance package negotiations that still regularly sells about ~35 copies a month at $85 each (2nd edition for 2017) without any effort. In order to generate $2,975 a month or $35,700 a year in passive income as I do now, I would need to invest $892,500 in something that generates a 4% yield! To earn $10,000 a year in passive income would therefore need roughly $250,000 in capital.
Pursuing passive income can be the right move for you, especially if you just need some extra cash to pay off debts. It’s important, though, that you find the right side hustle for you and your lifestyle. There’s no point in creating passive income if it’s not passive at all. Decide how much time and money you have to spare. Then choose the passive income venture that will prove most worthwhile.
It’s obvious that stocks outperform real estate in terms of capital gains, but I would like to see S&P compare to Real Estate in SF, Manhattan, LA. Our house in NC was $80,000 20 years ago. It’s only $150,000 now. Same house in Santa Monica went from $200,000 to $1.8 million. People who happen to bought real estate in major metropolitan would have a natural positive association with real estate investment.

For a closely held corporation, the passive activity loss is the excess of passive activity deductions over the sum of passive activity gross income and net active income. For details on net active income, see the Instructions for Form 8810. For the definition of passive activity gross income, see Passive Activity Income , later. For the definition of passive activity deductions, see Passive Activity Deductions , later.
If a passive activity interest is transferred because the owner dies, unused passive activity losses are allowed (to a certain extent) as a deduction against the decedent's income in the year of death. The decedent's losses are allowed only to the extent they exceed the amount by which the transferee's basis in the passive activity has been increased under the rules for determining the basis of property acquired from a decedent. For example, if the basis of an interest in a passive activity in the hands of a transferee is increased by $6,000 and unused passive activity losses of $8,000 were allocable to the interest at the date of death, then the decedent's deduction for the tax year would be limited to $2,000 ($8,000 − $6,000).
If any amount of your distributive share of a partnership's loss for the tax year is disallowed under the basis limitation, a ratable portion of your distributive share of each item of deduction or loss of the partnership is disallowed for the tax year. For this purpose, the ratable portion of an item of deduction or loss is the amount of such item multiplied by the fraction obtained by dividing:
No matter what, if you own something, you will have to put some effort towards it, yes. Even if you are as hands-off as possible, you may need to use your brain occasionally. Although I would say with mine, I might have to use my brain for a total of a 30 minutes or less a year. The only thing I do for my properties are answer emails or calls from my property manager and give him approval to do random things. That doesn’t even happen that often though. The most ‘work’ I ever do on my properties, other than give approval for repairs, is stress if there is a vacancy or turnover or something. Stressing is pretty passive though. Oh, and I spend 20 minutes or less gathering any documents I have for my accountants come tax time.
For one thing, there are fewer barriers to entry compared to other types of investments. For example, both Prosper and Lending Club, two of the largest P2P platforms, allow investors to fund loans with as little as a $25 investment. Both lenders also open their doors to non-accredited investors. While Title III of the Jumpstart Our Business Startups (JOBS) Act allows both accredited and non-accredited investors to invest through crowdfunding, every crowdfunding platform has its own policy regarding who can participate.

I’m a 45 year old business owner who also has focussed on diversifying my income streams. I have a short term vacation rental in Florida that I bought for $390k in 2012 and net rental income for the last three years has been growing steadily. 2015 I am at $70k gross right now but should end up at $80-85k with net around $45k plus we use the place about 35 nights a year.
In the Tax Court Case of  Stephen P. Hardy, et ux. v. Commissioner, TC Memo 2017-16.  Dr. Stephen P. Hardy is a plastic surgeon who has specialized in pediatric reconstructive surgery since the early nineties. He conducted his medical practice through Northwest Plastic Surgery Associates, which is a single member PLLC. Mrs. Hardy is the chief operating officer. Previously, Dr. Hardy performed operations either at his office or at two local hospitals.
Unearned income is not subject to payroll taxes. This is good news! However unearned income sources are included in your calculation of Adjusted Gross Income (AGI) for federal income tax purposes. You can find your AGI on line 37 of your 1040 tax form. Most unearned income such as interest income from CDs or savings accounts, IRA withdrawals, and pension payments are taxed at your marginal tax rate. However, certain types of unearned income, such as capital gains and qualified dividends are taxed at a lower rate.
Also, financial freedom is different for every person – that’s where lifestyle design comes in. If you determine that you need $4,000 or $8,000/month (your financial limit, as you called it) to allow you to never have to work again and live the kind of life you want, then you have achieved financial freedom through lifestyle design when your passive investments produce that income. It’s a very straight forward concept, and tons of investors have proved it’s doable.
To save time and effort, a person can group two or more of their passive activities into one larger activity, provided they form an "appropriate economic unit." When a taxpayer does this, instead of having to provide material participation in multiple activities, they only have to provide it for the activity as a whole. In addition, if a person includes multiple activities into one group and has to dispose of one of those activities, they’ve only done away with part of a larger activity as opposed to all of a smaller one. 
Role of “real estate professional” can be well played by a non-working or stay-at-home spouse. If you’ve got one who’s willing of course. 🙂 Under current tax law, with a spouse/real estate professional materially participating in the rental property activities, the 3.8% Medicare tax (discussed in Section 1) can be entirely avoided. So, while there is a bit of burden in meeting the requirements, this could be a great play for a Doc and a real estate professional spouse who want to take unlimited real estate losses against regular earned income AND shelter any gains from the additional 3.8% tax.
Lastly, you’ll need someone to help you create your product. Unless you decide to do this yourself, you’ll need to choose wisely. There are a lot of different choices for finding a graphic designer. Fiverr.com is a cheap option for having someone create a basic icon or other graphic needs starting at $5. 99designs.com is another great option if you want to have multiple graphic designers compete against one another to pitch you their best versions of your idea. 99designs also offers a 100% money back guarantee (which I’ve used), so you have nothing to lose! Upwork.com is good for finding just about everything. You can find graphic designers, app developers, and even marketers. I would stick to a simple graphic designer and app developer. Some teams do both graphic designs and app development, but I personally like to keep those separate. From experience, I’ve gotten better content when I don’t use one-stop-shops.
Airbnb is a concept that has only been around for a few years, but it has exploded around the globe. Airbnb allows people to travel all around the world and to stay in accommodations that are a lot less expensive than traditional hotels. They do this by staying with participating Airbnb members who rent out part of their homes to travelers. By participating in Airbnb, you can use your residence to accommodate guests and earn extra money just for renting out space in your home.
I guess I just don’t understand why the specific importance of focusing on “dividends” instead of focusing on the total return of your investment, including stock appreciation. I don’t really care if a company decides to issue a dividend or not; presumably, if they don’t issue a dividend, then they’re doing other things to increase the value of the company, which will be reflected in the stock price of the company. As an investor, I can make money by selling a percentage of my holdings or collecting dividends, and I don’t really care how that’s divided up – it’s an artificial distinction.
But, wait: nothing is ever that easy; And, there's no such thing as 100 percent passive income. Building passive income actually requires hustle and an investment of time upfront to get your money off the ground and growing while you eat, sleep and play. Maintaining that growth means making sure that you're using the right tools and strategies to automate the work for you.
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