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Active income means you are doing something in order to receive that income. Some kind of work. Some kind of effort. You are not hands-off. You have to exert some kind of energy and time towards earning that income. Passive income means you are earning regular income with little to no effort required to keep it coming. You are for the most part hands-off.
Passive income differs from active income which is defined as any earned income including all the taxable income and wages the earner get from working. Linear active income refers to one constantly needed to stay active to maintain the stream of income, and once an individual chooses to stop working the income will also stop, examples of active income include wages, self-employment income, martial participation in s corp, partnership.[4] portfolio income is derived from investments and includes capital gains, interest, dividends, and royalties.[5]
Typically, in IRC §§ 162  212. The IRS then may determine whether the activity is passive under Section 469 and disallow the deduction subject to certain exceptions. This case is different than most because the Hardy’s reported income as passive for 2008 through 2010 and claimed a passive activity loss carryover from the previous years. The IRS then determined that the activity was non-passive. IRC 469 disallows a deduction for any passive activity loss subject to a few exceptions.
Stock dividends: Some stocks, especially stocks from big corporate standouts, pay dividends to shareholders based on the number of shares they own, and the percentage of the stock price on the dividend date. For example, if a company pays out 3% on a stock that's trading at $100 per share, you'll earn $3 for every share of that stock you own. Add it up and that can be good take-home pay as a passive investment.
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.
Investors turn to real estate as a way to build long-term wealth, earn additional income, and generate a tax shelter. Using real estate as a tax shelter that extends to other income can be a complicated process. Knowing how you can use any losses generated by your rental real estate starts with understanding how the IRS defines and treats passive and active income.
Go to IRS.gov/Forms to view, download, or print all of the forms and publications you may need. You can also download and view popular tax publications and instructions (including the 1040 instructions) on mobile devices as an eBook at no charge. Or, you can go to IRS.gov/OrderForms to place an order and have forms mailed to you within 10 business days.
Peer-to-peer lending means loaning money to other people. Specifically, you lend money to people who don’t qualify for traditional financing. Companies like Lending Club and Prosper offer returns in the range of 4-10%, which are a lot higher than a typical saving account. You will be able to select the right investment for you, based on your risk assessment strategy.
Let me disabuse you of that notion right now: making money online is not so easy and you actually have to know what you’re doing. 10 years ago when self-publishing was booming and affiliate marketing was in its infancy, you could get rich with some sketchiness. Those days are long gone now. Self-publishing has matured and it’s far, far harder to propel your way up the all-important rankings. Google has come down hard on the spam and if there’s any hint of that on your websites, you’ll get penalized which means no search engine traffic sent your way. This is the death of the Internet marketer.
You don’t have to be a big corporate executive to need an assistant. Filing, emailing, scheduling and organizing the results of your moneymaking ventures takes time. And that's time you don’t want to waste while building your passive income empire. Nor do you want to expend any more time and money training and paying a new employee than you need to. Instead, consider hiring a virtual assistant.
For 2017, passive income that is taxed as ordinary income will be taxed in the 2017 tax brackets, and so the income tax rates range from 10 to 39.6 percent depending on your annual income. Long-term capital gains and qualified dividends are taxed at zero, 15 and 20 percent for 2017, but the brackets are different. So you can earn up to $37,950 in the 2017 tax year without paying taxes on these gains; if you earn between $37,950 and $418,400, the gains are taxed at 15 percent; and if you earn more than $418,400, your gains are taxed at 20 percent.

If you sell your entire interest in a passive activity through an installment sale to figure the loss for the current year that isn’t limited by the passive activity rules, multiply your overall loss (not including losses allowed in prior years) by a fraction. The numerator of the fraction is the gain recognized in the current year, and the denominator is the total gain from the sale minus all gains recognized in prior years.
You pay two main types of taxes on earned income, Social Security/Medicare taxes (called FICA, OASDI, or payroll taxes), and federal and state income taxes. The payroll taxes that are automatically taken out of your paycheck have two components. First, 12.4 percent of earned income is paid to Social Security. Your employer pays half of this tax, and you pay half. If you are self-employed you'll pay the full 12.4 percent, however, the "employer" portion of 6.2 percent is generally tax deductible.
This one may seem simple, but that’s only because it is. If you were to move your savings from a traditional, brick-and-mortar bank with a low-interest rate and into a high-yield savings account online, over time you can make a surprising amount of extra cash. Online banks are FDIC-insured just like the traditional brick-and-mortar institutions, so your money is just as safe.
You can find dividend stocks using Google Finance Stock Screener which is free to use. Set the search criteria for the P/E Ratio, and Dividend yield (shown as a percentage) criteria. You can set minimum and maximum values; in the dividend yield box, set it between 2 and 100. This will search for stocks that pay dividends worth between 2-100% of the current stock price.
You must file a written statement with your original income tax return for the first tax year in which two or more activities are originally grouped into a single activity. The statement must provide the names, addresses, and employer identification numbers (EINs), if applicable, for the activities being grouped as a single activity. In addition, the statement must contain a declaration that the grouped activities make up an appropriate economic unit for the measurement of gain or loss under the passive activity rules.
A rental activity is a passive activity even if you materially participated in that activity, unless you materially participated as a real estate professional. See Real Estate Professional under Activities That Aren’t Passive Activities, later. An activity is a rental activity if tangible property (real or personal) is used by customers or held for use by customers, and the gross income (or expected gross income) from the activity represents amounts paid (or to be paid) mainly for the use of the property. It doesn’t matter whether the use is under a lease, a service contract, or some other arrangement.
5. Make sure you are properly diversified. Capital preservation is underrated. We saw a lost decade for tech stocks between 2000 and 2010 after the first dot-com bubble burst. It actually took 13 years for Nasdaq investors to get back to even. Investors in the Borsa Istanbul stock market index just gave up 10 years' worth of gains after they saw a plunge in their currency, partially due to increased tariffs by the US and a lack of confidence in the government. Your passive income needs to be properly diversified in order to take the hits.
Passive income, in a nutshell, is money that flows in on a regular basis without requiring a substantial amount of effort to create it. The idea is that you make an upfront investment time and/or money but once the ball is rolling, there's minimal maintenance required going forward. That being said, not all passive income opportunities are created equally. For investors, building a solid portfolio means knowing which passive investing strategies to pursue.
Leveraging the internet to create, connect, and sell is something every creative person should attempt to do. The only risk is lost time and a wounded ego. You can start a site like mine for as little as $2.95 a month with Bluehost and go from there. They give you a free domain name for a year. Forget all the add-ons. Not a day goes by that I’m not grateful for my site.

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.
I knew I didn't want to work 70 hours a week in finance forever. My body was breaking down, and I was constantly stressed. As a result, I started saving every other paycheck and 100% of my bonus since my first year out of college in 1999. By the time 2012 rolled around, I was earning enough passive income (about $78,000) to negotiate a severance and be free.
In general, the purpose of the passive activity rules is to prevent taxpayers from improperly claiming immediate tax losses on investments. Instead, the IRS wants to limit loss deductions to those businesses where taxpayers were integrally involved with the operation or management of the business. In conjunction with other rules that limit losses to the amount of money that an investor puts at risk, the end result of the passive activity rules is to encourage taxpayers to engage in profitable passive activities in order to wipe out any passive activity losses they might incur.
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When money is lent to a partnership or S-corporation acting as a pass-through entity (essentially a business that is designed to reduce the effects of double taxation) by that entity’s owner, the interest income on that loan to the portfolio income can qualify as passive income. As the IRS language reads: "Certain self-charged interest income or deductions may be treated as passive activity gross income or passive activity deductions if the loan proceeds are used in a passive activity."
I’m with you Dennis. My whole goal, for years, was to get myself into a position to be able to go back to flight instructing but not be reliant on the income (because it isn’t good). I didn’t know how I would do it, but I ended up starting my own business that I work whenever I want, so now I can pop out to the airport for a couple flights a week and have fun with it, not care about the income (or lack there of) and enjoy it. That is a “job” I will probably always work, but it’s because it’s fun and not required for the income.
Finally, I imagine the biggest debate with my ranking is Creating Your Own Product as the #1 passive income source. If most people have never created their own product, then it’s easy to give it a thumbs down. There won’t be much complaint about Private Equity Investing being in last place because most people are not accredited investors. But given I believe that plenty of people can create their own product if they try, pushback is inevitable because a lot of people simply don’t try!
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.

In the case of an activity with respect to which any deductions or credits are disallowed for a taxable year (the loss activity), the disallowed deductions are allocated among your activities for the next tax year in a manner that reasonably reflects the extent to which each activity continues the loss activity. The disallowed deductions or credits allocated to an activity under the preceding sentence are treated as deductions or credits from the activity for the next tax year. For more information, see Regulations section 1.469-1(f)(4).
Thanks for writing this Mr. Samurai. I just got over the student loan hump but I feel pretty good about it at 27 having a graduate degree and being 100% debt free. Now that I’m on the other side it is good for my brain to absorb some of your knowledge regarding passive income investments. I love gleaning wisdom from older folks who have been there and done that. Mentors rock!
I read about early withdrawal penalties on IRAs/401Ks very often. Almost always with a statement of “locked up” or “can’t touch” until 59.5. I’m sure you and well informed readers as well know about SEPPs in regard to IRAs/401Ks. For those that don’t SEPPs aren’t perfect but they are a way to tap retirement funds penalty free and I will be using in the future as I have over half of my equity investments within retirement accounts. South of a mil, North of a half. Let me add that I think your blog is outstanding.
You don’t have to limit yourself to one or two solutions or vendors. Financial products are packaged by investment analysts and then sold by salespeople. Do your own research and find products that match your needs, instead of blindly accepting what your financial advisor loves – products that generate huge commissions for themselves at the expense of ignorant clients.
Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world. Follow @DanCaplinger
If you want nothing but the best, then amazon top 10 passive incomes is the one you should definitely consider, as it manages to bring a lot to the table. Amazon top 10 passive incomes is the epitome of what a great passive income should be. When it comes to searching a optimal passive income, the amazon top 10 passive incomes is definitely your first choice.
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.
Speaking from our own experience, you can’t be a passive McDonald’s franchisee. Every McDonald’s potential franchisee will need to complete at least thousands of hours of training before he/she would be approved to acquire a franchise and only if he/she has the financial resources to acquire a franchise. It could take years before one would get a single store franchise. Until the franchisee eventually has acquired multiple stores and established his/her own management team, the franchisee would have to put his/her nose to the grindstone and work his/her ass off every day. I won’t call it a passive investment by any stretch of imagination.
However, self-publishing is a good option for generating passive income and fits very well with the “work-up-front, reap benefits later” model. It’s a ton of work to write a book, especially when you’re just getting everything like editing, formatting, cover design, and book descriptions all figured out. But, once you do all that work, you can upload it to Amazon and then hopefully keep earning commissions for months or even years.

I’ve never invested in real estate (except to live in), but am always intrigued by communities like FS who seem to have such a passion for it. My intrigue stems back to my earlier comments that the long term trends in appreciation in real estate are simply not very competitive versus equities, despite what Robert Kiyosaki had to say in his book, Rich Dad, Poor Dad.


No one should turn down wind farming’s ultimate passive income for the next 30 or more years … even 60 years when there is a positive cash flow on the sum total of all base payments when computing inflation for the next 60 years based on the previous 60 years, as long as the next era’s energy resource is not perfected (at which time they would not renew the option for the second 30 years).
Finding an outstanding development team is critical for success. Don’t just go for the lowest and cheapest price. You need a balance of budget and quality. From personal experience, I’ve had the best luck with developers from Romania. That is my number one pick. When you post a job on Upwork.com, everyone will be promising you world. Do not fall for a development team that does not have good feedback and return clients. Return clients are one of the most important. This means their client was willing to return to them for more work after their job finished! That says something.
Do you know what the single biggest threat to your financial well-being is? The answer is your own brain. They’re people who listened to the Unshakeable by Tony Robbins’ audiobook along with having read the book and they still might become victims to a form of financial self-sabotage. The thing is, for a lot of us, losing all our money and everything we own, especially in one shot, feels a lot like dying. That’s why 80% of success is psychology and the other 20% is mechanics.
Are you totally convinced that I have completely diverged from talking about active vs. passive income? I don’t blame you. I would have forgotten about those by now too. But let’s bring them back now. Ok, how do those relate to lifestyle design? Well, I’m assuming we have established that your personal lifestyle design does not involve working, correct? Do you remember which kind of income requires you to work for it? Active income. So then for complete lifestyle design, do you want to have to rely on any active income? No. You only want passive income because passive income doesn’t require much, if any, work on your part. Then you are free to travel or play or watch TV all you want.
Try going to our post: 20 Sites That Will Pay You to Read Books: https://wellkeptwallet.com/get-paid-to-read-books/. Even though editing is not what this post is about, there are several companies that might do book editing such as Kirkus: https://www.kirkusreviews.com/editing-services/get-started/marketing/?utm_source=google&utm_medium=cpc&utm_term=%2Bbook%20%2Bediting&utm_campaign=Editorial-ES I hope this helps and good luck on your book!
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