Passive income is an income received on a regular basis, with some effort required to maintain it.
If you want to drink lemonade you will need lemons. You can buy lemons or you can harvest them. Passive income is having the lemon tree that in a regular basis will be giving you lemons.
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The American Internal Revenue Service categorizes income into three broad types, active (earned) income, passive income, and portfolio income.
- Earnings from a business that does not require direct involvement from the owner or merchant;
- Rent from property;
- Royalties from publishing a book or from licensing a patent or other form of intellectual property, such as computer software product;
- Earnings from internet advertisements on websites;
- Dividend and interest income from owning securities, such as stocks and bonds, is usually referred to as portfolio income, which may or may not be considered a form of passive income. In theUnited States, portfolio income is considered a different type of income than passive income;
- Pensions.
