As a general rule, the passive activity loss rules are applied at the individual level. Although Internal Revenue Code Section 469 was enacted to discourage abusive tax shelters, its impact extends far beyond shelters to virtually every business or rental activity whether reported on Schedules C, F, or E, as well as to flow through income and losses from partnerships, S- Corporations, and trusts. Generally, the law does not apply to regular C-Corporations although it does have limited application to closely held corporations.
Fulfillment by Amazon (FBA) is another model that has been gaining popularity in recent months. The major difference from the model that I described above is that instead of shipping it to a warehouse, you ship it directly to Amazon. For a cut of the money on each sale (and they also charge storage costs), they package it all up and send out your order. You make less money than doing it yourself, however once set up, it does have the hands-off factor going for it.

Active Income Investments: Flipping and wholesaling. You have to do work in order to see money from these. You have to be hands-on. Note: I do still stand by my argument that wholesaling is not actually an investment at all, but for the sake of so many people thinking it is, I am including it. Another note: It is possible, if you are really slick and good, that you could be decently hands-off for a flip. But that is long down the road of being an advanced flipper so for now, I’m leaving it here.
If you have any questions or you can’t decide how best to invest your assets, consider talking to a financial advisor. A matching tool like SmartAsset’s SmartAdvisor can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to up to three registered investment advisors who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.
Next, make sure to know the difference between “Top Grossing” and “Top Paid”. They are both very different rankings. “Top Grossing” is what you use to study what is making the most money. “Top Paid” is more so for trending. More downloads doesn’t necessarily mean more revenue. Personally, I study both. However, “Top Grossing” is better at giving you an idea of revenue potential.
Another thing that belongs firmly at the top of passive income ideas lists is affiliate marketing, where you earn a commission for each product or service that you recommend. My new focus these days is on Amazon affiliate websites. The idea is that you talk about, or review products that you can find on Amazon. People visit your website, click on some of your Amazon affiliate links, buy a product on Amazon and you get a commission for any sales, not only for that specific product but for anything they buy within a 24-hour period.
We are going to start with 1.5 years of all spending needs in cash. We will draw 1800 to 1900 per month. We will add to this from the index funds by taking a portion of the gains in good years to supplement. This is the total return portion of the equation. Obviously, if stocks decrease drastically over a 5 year period, then I would have to reload by selling some of the ETF holdings.
Now, under the regime proposed by the 2018 federal budget, the same corporation would not be eligible for a refund of its RDTOH upon the payment of the Eligible Dividend. Instead, the corporation will obtain its RDTOH back only if the dividend paid is a dividend other than an Eligible Dividend. This will therefore eliminate the deferral of the additional 4% income tax.
The practice of day trading refers to buying and selling mostly cheaper varieties of stock. These traders don’t hold onto stock like traditional investors do. Instead, they earn profits by day trading. Now, this type of trading can be very risky because the market is volatile. Also, the cheapest types of stocks are highly likely to be negatively impacted by scams and fraud. Regardless, some traders do manage to master the art of day trading by researching the companies from which the stocks originate. Studying price history charts and understanding trends in a particular sector can help traders become proficient in their craft. Thanks to new tech, anyone can become a trader from the comfort of their personal computer or smartphone.
Passive activity loss is defined as “the excess of the aggregate losses from all passive activities for the taxable year over the aggregate income from all passive activities for that year.” A passive activity is any trade or business where the taxpayer does not materially participate. The taxpayer would materially participate in an activity if “they are involved in the operations of the activity on a regular, continuous, and substantial basis “Dr. Hardy's activity does not meet the material participation test.
The age old argument of total return versus income has been, incorrectly imo, categorized as an either or proposition. We are going to do both. Right now I have a lot cash in an on line money market. I also have investments in 2 passive Index funds in a taxable account. We then have substantial 401ks/IRA’s which we won’t touch for at least 10 years. My wife will continue to max out her sep and we will continue to invest in the index funds although with a smaller amount. We have already factored that in. I looked at how to cut into the monthly deficit. Here is what I observed.
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.
Almost all of these ideas require starting a personal blog or website. But the great thing about that is that it's incredibly cheap to do. We recommend using Bluehost to get started. You get a free domain name and hosting starts at just $2.95 per month - a deal that you won't find many other places online! You can afford that to start building a passive income stream.
In addition, any prior year unallowed passive activity credits from a former passive activity offset the allocable part of your current year tax liability. The allocable part of your current year tax liability is that part of this year's tax liability that‘s allocable to the current year net income from the former passive activity. You figure this after you reduce your net income from the activity by any prior year unallowed loss from that activity (but not below zero).
I hope you remember me for my good qualities and not my bad ones because I have plenty of both. As far as the tax bill, I’ll have a podcast coming up on it but probably won’t do a post until it’s law and probably not until well into the new year. I’m sure I’ll offend all of my listeners with the podcast and the post, both those who think the tax system should be more progressive and those who think it should be less progressive.
Hi there. I am new here, I live in Norway, and I am working my way to FI. I am 43 years now and started way to late….. It just came to my mind for real 2,5years ago after having read Mr Moneymoustache`s blog. Fortunately I have been good with money before also so my starting point has been good. I was smart enough to buy a rental apartment 18years ago, with only 12000$ in my pocket to invest which was 1/10 of the price of the property. I actually just sold it as the ROI (I think its the right word for it) was coming down to nothing really. If I took the rent, subtracted the monthly costs and also subtracted what a loan would cost me, and after that subtracted tax the following numbers appeared: The sales value of the apartment after tax was around 300000$ and the sum I would have left every year on the rent was 3750$……..Ok it was payed down so the real numbers were higher, but that is incredibly low returns. It was located in Oslo the capital of Norway, so the price rise have been tremendous the late 18 years. I am all for stocks now. I know they also are priced high at the moment which my 53% return since December 2016 also shows……..The only reason this apartment was the right decision 18 years ago, was the big leverage and the tremendous price growth. It was right then, but it does not have to be right now to do the same. For the stocks I run a very easy in / out of the marked rule, which would give you better sleep, and also historically better rates of return, but more important lower volatility on you portfolio. Try out for yourself the following: Sell the S&P 500 when it is performing under its 365days average, and buy when it crosses over. I do not use the s&P 500 but the obx index in Norway. Even if you calculate in the cost of selling and buying including the spread of the product I am using the results are amazing. I have run through all the data thoroughly since 1983, and the result was that the index gave 44x the investment and the investment in the index gives 77x the investment in this timeframe. The most important findings though is what it means to you when you start withdrawing principal, as you will not experience all the big dips and therefore do not destroy your principal withdrawing through those dips. I hav all the graphs and statistics for it and it really works. The “drawbacks” is that during good times like from 2009 til today you will fall a little short of the index because of some “false” out indications, but who cares when your portfolio return in 2008 was 0% instead of -55%…….To give a little during good times costs so little in comparison to the return you get in the bad times. All is of course done from an account where you do not get taxed for selling and buying as long as you dont withdraw anything.
Many entrepreneurs are asking if the new rules will result in them paying additional taxes if their corporations generate passive income in excess of $50,000. In most circumstances, the answer is that they will pay more corporate taxes, thereby reducing the size of their tax deferral advantage (from 40% down to 27% on their 2019 corporate income earned in Ontario).

The activity is a personal service activity in which you materially participated for any 3 (whether or not consecutive) preceding tax years. An activity is a personal service activity if it involves the performance of personal services in the fields of health (including veterinary services), law, engineering, architecture, accounting, actuarial science, performing arts, consulting, or any other trade or business in which capital isn’t a material income-producing factor.
One of the major premises of this blog is that a physician need not do anything special in order to reach financial independence and “live the good life.” She doesn’t need a side gig. She doesn’t need fancy investments. She doesn’t need a financial advisor. Simply living like a resident for 2-5 years after residency and then continuing to put 20% of your gross income into a reasonable, simple investing plan should enable any physician to meet all their reasonable financial goals and achieve financial freedom within the span of a typical career.
We regularly update ourselves with the advancements in these passive incomes since 2 years. We have probably handled more products and accessories than almost any team on the planet, so we have a particularly experienced perspective and depth of knowledge when it comes to these items. We looked at several aspects when choosing the best passive incomes, from objective measures such as physical dimensions and design to subjective considerations of look and feel. Though we have a variety of recommendations across various styles, all of our picks satisfy criteria that suits most people, there by reducing the confusion of choice. For a fresh prespective, we also asked non-tech-focused friends to tell us what they thought about the finalists.
The same analysis would apply to a situation where a CCPC carrying on a real estate property realizes a capital gain upon the sale of one of its rental properties. The RDTOH generated from the capital gain, would now be refunded to the corporation only upon the payment of a dividend that is not an Eligible Dividend sourced from the passive income. As a result, the additional 4% personal income tax cannot be postponed at the individual level while having at the same time the corporation benefit from the RDTOH refund.
Once your audience has grown and you have validation that you’re offering them value, there are many ways to create passive income. You could sell digital products like ebooks or courses, take up affiliate marketing in which you promote other company’s products and earn a commission when you sell that item to your audience, build a community and charge people to be a part of it, create software and sell that, among other avenues. Ask your audience directly what would serve them best, or look at what they’re saying on Twitter, Facebook or other websites, to find out what problems they have and how you could help solve them.

In mid-2017, I sold my San Francisco rental property for 30X annual gross rent and reinvested $500,000 of the proceeds in real estate crowdfunding. I’m leveraging technology to invest in lower valuation properties with higher net rental yields in the heartland of America. With the new tax policy starting in 2018 capping state income and property tax deductions to $10,000 and limiting interest deduction on mortgages of only $750,000 from $1,000,000, expensive coastal city real estate markets should soften at the expense of non-coastal city real estate.
This is important to understand this because it is a difference of how you spend your time. No-joke big-time investors make money in their sleep without putting in any effort because they invest in passive income investments. If you are putting in effort, while you might be making bank and doing great at it, you are working. You are making a lot of income because you are rocking out a J-O-B. The no-joke big-time investors, if you’ll notice, also put in a lot of effort but their effort is not on what is currently making them income, it is on finding the next thing that will provide them more income!

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!
P.S. I also fail to understand your fascination with real estate. Granted we’ve had some impressive spikes along the way, especially with once in a life time bubble we just went through. But over the long term (see Case Shiller real estate chart for last 100 years ) real estate tends to just track inflation. Why would you sacrifice stock market returns for a vehicle that historically hasn’t shown a real return?
The key here is that income from equipment leasing or rental real estate is generally treated as passive income, with only limited exceptions. Other businesses, including sole proprietorships, partnerships, limited liability companies, and S corporations, produce passive income if the individual taxpayer in question doesn't meet the standard for material participation.
†Advertiser Disclosure: Many of the card offers that appear on this site are from companies from which CreditDonkey receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). CreditDonkey does not include all companies or all offers that may be available in the marketplace.
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.

For those willing to take on the task of managing a property, real estate can be a powerful semi-passive income stream due to the combination of rental and principal value appreciation. But to generate passive income from real estate, you either have to rent out a room in your house, rent out your entire house and rent elsewhere (seems counterproductive), or buy a rental property. It’s important to realize that owning your primary residence means you are neutral the real estate market. Renting means you are short the real estate market, and only after buying two or more properties are you actually long real estate.
I am 30 years old and am retired. Previously, I made a modest salary as an Army officer. I own three duplexes and a quadplex in central Texas (10 rental units in all), and each of the properties provide me with net rental yields in excess of 15%. The last deal is actually an infinite return as my partner paid the down payment in return for a 50/50 split on a property that would otherwise provide a net rental yield of 18%. The above net rental yields also factor in an excellent property management team who manages my properties while I pursue other investment opportunities. To date, I have never interacted with any of my tenants nor have I ever had to personally deal with any maintenance issues.
A Risk Score of 10 means no risk. A Return Score of 1 means the returns are horrible compared to the risk-free rate. A Feasibility score of 10 means everybody can do it. A Liquidity Score of 1 means it’s very difficult to withdraw your money without a massive penalty. An Activity Score of 10 means you can kick back and do nothing to earn income. To make the ranking as realistic as possible, every score is relative to each other. Furthermore, the return criteria is based off trying to generate $10,000 a year in passive income.
If you are too risk-averse to engage in stock trading, there’s a much safer option to earn passive income, albeit with much lower margins of return: certificates of deposit or fixed deposits issued by banks. These financial vehicles are similar to mini investments. CDs work very similar to savings accounts with one notable difference. Once you place a deposit, it cannot be withdrawn until the certificate matures. You can obtain these certificates for lump sums of cash that you can allow to mature within time periods like 2 years or 5 years. The advantage of CDs is that they offer higher interest rates than regular savings accounts. You can rest assured that the money will be safe in the bank. A CD earns interest quarterly or annually and all you have to do is just sit back and wait for it to mature.
My favorite type of semi-passive income was rental property because it was a tangible asset that provided reliable income. As I grew older, my interest in rental property waned because I no longer had the patience and time to deal with maintenance issues and tenants. Online real estate became more attractive, along with tax-free municipal-bond income once rates started to rise.
If you qualified as a real estate professional for 2017, report income or losses from rental real estate activities in which you materially participated as nonpassive income or losses, and complete line 43 of Schedule E (Form 1040). If you also have an unallowed loss from these activities from an earlier year when you didn’t qualify, see Treatment of former passive activities under Passive Activities, earlier.
Earlier this year, the government passed new tax legislation governing Canadian-controlled private corporations (CCPCs), including incorporated professionals. As we enter the final weeks of 2018, one new measure is of particular concern — the potential looming loss of the small business deduction (SBD) in 2019 for corporations with more than $50,000 of passive investment income in 2018.
One great way to generate a passive income is through affiliate marketing. Now, this does depend on the size of your list. Yes, size matters when it comes to your list. Especially if you're looking to make some serious money and do it on autopilot. But, list-building takes time. It doesn't happen overnight. And you need to add value to your list or you become obsolete.
More good news. The LLC’s activities are considered self-rental activities which means that you are creating a transaction with yourself. Provided that this arrangement is at market rates, the IRS accepts this relationship. Moreover, the self-rental income is not considered passive and therefore not subjected to the Net Investment Income Tax calculations.
Good suggestions. I have many of these. One word about the “app” idea. I had a great idea related to personal taxes that I tried to get off the ground with my accountant as a partner. I would say it’s difficult to do this unless you have a coder on your team. Hiring someone is not really viable financially unless the app is simple. When we finally got the quote for a coder to write what we wanted (and after doing lots of mock ups ourselves and getting a demo for investors) the estimate was about 750k just to really get started.
If you love design and you are an artistic person, selling digital products on Etsy could be a great way to earn passive income. Digital products require little maintenance, your customers will simply receive a link to download them (which means you don’t have to worry about shipping and returns handling). All you need to do is spend time upfront to create beautiful artwork! (Easy right?)
When I purchase an existing online business, I look for cash flow over the past year and where the money comes from. I want the sources to be more passive so that it does not take a lot of my time. Also, typically I will make an offer that is 18 – 24 months of profit so that I know that I will get my money back within the next two years. I hope that helps!
×