Money money money makes most of our worlds go around comfortably. Most people work for their money, while others choose to earn their money passively. We call these people the Tommy’s of the world, but the savvy like to earn their money both ways: active and passive. Active income is Income you actively work for, while passive income is income you passively earn. One is income you work for and the latter is income you make even when you don’t work.
It is important to understand INCOME, at least in the eyes of the IRS and taxes, because a percentage of your income is what the IRS and the State you live in expect you to pay on a consistent and regular basis. I am not going to make this a tax blog, but I will simply say this before I jump on the “Why Taxes?” Soap Box; Taxes is the ONE thing I know you PAY when you retire until you die, and even after you die. (For more on this go to my Vlogg: You Pay Taxes Even When You Die).
Did you know that different types of income are taxed differently?
Therefore you should decide how you want to earn income or money, so you can eventually stop working for money, allow your money to work for you and release yourself to your free will. I actually don’t think you have to choose how you want to make money. I believe you should earn money both actively and passively.
It takes TWO kinds of income, to make your finances go right!, according to Rob Base & DJ EZ Rock (Rob Base & DJ EZ Rock – It Takes Two).
Here is how we separate income: 1. Active and 2. Passive
Active income is Income you Actively Earn, while Passive income is Income You Passively Earn. One is income you work for and the latter is income you make even when you don’t work.
The IRS requests us to separate our income between active and passive income because it is taxed at different rates. Consult with your Accountant to ensure you are capturing and getting your income right and if you don’t have an accountant (www.AccountantThisWay.com) and we can help you file your tax extension if you need more time to file for $200. The tax deadline for Corporations, S-Corporations, and Partnership tax returns is March 15th. If you need more time, www.accountantthisway.com
For now, check-out my list below and let’s decide how you are earning your income, is it Active or Passive Income?
Here are examples of Active Income:
- Wages and Tips from Work
- Salary from your Job
- Sole Proprietorship, Business Income
- Unemployment Income
Here are examples of Passive Income:
- Stock distribution income
- Gain from selling stock
- Selling a property
- Interest Earned
- Rental income, there are exceptions
- Investments in business
- Sell of currencies
- Dividend Income
- Shareholder income
My list of passive income is twice as long as the active income list because passive income is twice is good to me. 🙂
Active income: Income you have to work for.
Passive income: Income you make without labor.
As a Business Owner is your Income Active, Passive, or Both ? Let’s Talk… and you can check out my Vlog on (How to pay yourself in Business 101?)