Difference Between Active Income And Passive Income

Active income requires physical presence and time in order to produce revenue.

Difference between active income and passive income. Many also consider passive income to be income from activities that you do for a short time the set up but that require very little else to maintain the income flow. Passive income is money you regularly receive without performing active work. What is passive income. The irs sets some stipulations for qualifying active investment activity.

Or it can be income such as a pension or book royalties you receive sometime after active work was conducted. Passive income is different from active income because of the simple fact that it s income that you may only have to set up one time or have very minimal involvement for that income to come in on a monthly bimonthly quarterly or annual basis. Though there are limit to the amount of active income you can earn. We can be sleeping watching movie etc and yet it still generates an income for us.

For example hourly wages salaries commissions and tips are all examples of active income. Time is the key differentiator between active income and passive income. Passive income is money keeps growing even when you sleep take a vacation or are sick. You can claim your income as being active if you own and are a material participant to the business.

The biggest difference between passive income vs active income is labor. Money you must physically work for i e. Having the comfort of knowing you will get paid at the end of the day is definitely good. Some may earn you hundreds or thousands of dollars every month or even every day.

Active income ensure that you are getting paid for all your work. In active income we use our time to provide a service in exchange for money. In passive income money continues to come in without our active time spent on it. When looking at the term it s easy to see that passive income is any income source which doesn t come from active sources also known as ordinary.

Passive income may take an important time or financial investment to setup however it can provide non active income for years. Every passive income idea may or may not work. There are two different types of income. Even a tedious job that is not challenging in any way can actually be considered active since it is quite draining to go through the day in such a setting.

Active income on the other hand is money earned in exchange for performing a service. On the other hand passive income is earned when you put your money to work for you. Money you earn without working for. Passive income is a steady stream of revenue that does not require active maintenance.