What is a Passive Income Source?
Passive income is the word where most of the people start searching for when they lost their jobs during pandemic lockdowns. The only reason is why passive income was searched most is that Passive Income itself showcases its freedom of earnings.
Passive income is a way of deriving an income without being actively participating in economic activity. Such as – rental income, limited partnership, and royalties.
However, there is no such thing in the world where you don’t involve in any activity but you are getting paid unless you have won a lottery. As an example, for you to earn rental income, you need to first invest some capital and construct a building so that the construction can be rented out in the future.
“Passive income is not entirely effortless income generation and you will become a millionaire overnight. That is a Scam unless its a legit lottery. – Passive income is always about providing a value which is higher in values and selling the effort multiple times and generate revenue”
What is a Passive Income Source?
There are three main revenue sources where a person can earn revenue from.
- Active Income
- Passive Income
- Portfolio Income
Active income is mainly you are selling your time with an employer for a monthly fixed salary. The main drawback and the biggest mistake a person could do is that you are trading your precious time with a job where you are easily replaceable. There are no jobs on earth where the person cannot be replaced. It’s always replaceable. Human time is not measurable, hence, a company cannot measure the value of your time.
On the other hand, Passive Income is where you generate revenue from not trading your precious time. However, there is a small component of time where you have to make an initial investment in your valuable time. However, after completing the initial investment, you do not have to involve actively generate monthly income. The assets you built will generate income while you are sleeping.
Portfolio income is where you have invested your money in a portfolio of investments and your active decision-making and participation are required to make the best out of your portfolio and hence to increase revenue. However, the main difference between Active Income and Portfolio Income is that you do not trade your time on someone else work, it’s you who spent your time on your own assets.
Proponents of earning passive income tend to be boosters of a work-from-home and be-your-own-boss professional lifestyle. Passive income has been a relatively loosely used term in recent years. Colloquially, it’s been used to define money being earned regularly with little or no effort on the part of the person receiving it.
What are the types of Passive Income?
When money is loaned to 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. “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,” the IRS states.
Rental properties are defined as passive income with a couple of exceptions. If you’re a real estate professional, any rental income you’re making counts as active income. If you’re “self-renting,” meaning that you own a space and are renting it out to a corporation or partnership where you conduct business, that does not constitute passive income unless that lease had been signed before 1988, in which case you’ve been grandfathered into having that income defined as passive. The IRS notes, “It doesn’t matter whether or not the use is under a lease, a service contract, or some other arrangement.”
However, income from leasing land does not qualify as passive income. Despite this, a landowner can benefit from passive income loss rules if the property nets a loss during the tax year.
As a conclusion, this is the summary of why Passive Income is the Only way of becoming a Millionaire. Passive Income is the most advanced, yet most simple way of making money.
Passive Income does not mean that you do not involve in decision making, its a scam! You have to be a part of the decision making and you have to invest your time on your income sources. After the initial investments, you do not have to invest anymore minutes on the same thing.