Non-passive income, also known as active or earned income, refers to income earned through active participation in work, services, or business activities. It is distinct from passive income, which is earned with minimal effort or involvement. Non-passive income requires active involvement and effort on the part of the earner, and it is typically subject to regular income tax rates.
Key Facts
- Non-passive income, also known as active or earned income, refers to the money that you earn through your active efforts, typically by trading your time and expertise for compensation.
- Non-passive income is income earned through active participation in work, services, or business activities.
- Non-passive income includes wages, business income, investment income, and other types of income that are earned through active involvement.
- Non-passive income requires active participation and effort on the part of the earner.
- Non-passive income is subject to regular income tax rates, which can range from 10% to 37%, depending on the income bracket.
Sources of Non-Passive Income
Non-passive income can be derived from a variety of sources, including:
- Wages and salaries earned from employment
- Business income from self-employment or ownership of a business
- Investment income, such as dividends, interest, and capital gains from actively managed investments
- Professional fees earned by professionals such as doctors, lawyers, and accountants
- Royalties earned from the use of intellectual property, such as patents, copyrights, and trademarks
Tax Treatment of Non-Passive Income
Non-passive income is subject to regular income tax rates, which can range from 10% to 37%, depending on the income bracket. This is in contrast to passive income, which is often taxed at a lower rate. However, non-passive income earners may be eligible for certain tax deductions and credits, such as the standard deduction, itemized deductions, and tax credits for education, childcare, and other expenses.
Conclusion
Non-passive income plays a significant role in the financial well-being of individuals and families. It is a source of earned income that is subject to regular income tax rates. Understanding the sources and tax treatment of non-passive income is essential for effective financial planning and tax management.
Sources
- 4 Types of Non-Passive Income That Could Make You Serious Cash
- What Is Nonpassive Income and Losses? What Is Included
- Passive vs. Non-Passive Income: What’s the Difference?
FAQs
What is non-passive income?
Non-passive income is income earned through active participation in work, services, or business activities. It is distinct from passive income, which is earned with minimal effort or involvement.
What are some examples of non-passive income?
Examples of non-passive income include wages and salaries, business income, investment income, professional fees, and royalties.
How is non-passive income taxed?
Non-passive income is subject to regular income tax rates, which can range from 10% to 37%, depending on the income bracket.
What are the advantages of non-passive income?
Non-passive income can provide a steady and reliable source of income. It can also be used to build wealth and achieve financial independence.
What are the disadvantages of non-passive income?
Non-passive income requires active involvement and effort on the part of the earner. It can also be subject to higher tax rates than passive income.
How can I increase my non-passive income?
There are a number of ways to increase your non-passive income, such as starting a business, investing in real estate, or developing a skill that you can monetize.
What is the difference between non-passive income and earned income?
Non-passive income is a type of earned income, but it is specifically defined by the tax code as income that is not passive. Earned income is any income that is derived from personal services, such as wages, salaries, and commissions.
Is non-passive income considered self-employment income?
Non-passive income can be considered self-employment income if it is earned by an individual who is self-employed. Self-employment income is any income that is earned from a trade or business that is operated by an individual or a partnership.