Passive Income

Passive Income

Society tends to base off of the belief that the only way to earn money is by putting your hard work and effort into your job and role continuously, active income. However, the accumulation of money in the 21st century occurs due to side actions and investments where the person does not need to actively do any duty, also known as passive income. Conclusively, the main difference between passive and active income is the amount of work and effort a person needs to put in to receive this income. According to the Internal Revenue Service (IRS), there are three different types of passive income: self-charged interest, rental properties, and no material participation in a business.

• Self-Charged Interest

Directly or indirectly participating as an owner in a corporation (shareholder) could result in passive income if using the idea of self-charged interest. For example, if one was a shareholder in a corporation, they could lend money to “their” corporation in the designated tax year, which would result in that person receiving back in interest, gaining money/income without actually participating.

• Rental Properties

Originally, when thinking about passive income, renting properties or land is the first thing to come to mind as it is a very common method of practicing passive income. However, there are some limitations to this exercise as if one owned a property and was conducting a business or practice there, it would not count as passive income, also known as “self-renting”. An easy way to receive income through renting an area or property would be to allow another corporation or business to run in that location, counting as passive income.

• No material participation in a business

The idea of material participation is putting in hours as well as money in to run a business known as active income. The idea of no material participation in a business is the idea of investing a certain amount of money into a business or corporation and receiving money back in a form of interest while putting in no effort to run the business.

Passive income for teens

A few good ways to begin passive income for teenagers while managing school work and other extracurriculars are:

• Youtube Channel

• Blogs

• Small Businesses

Although the list is small, it is very beneficial in income earning, however, it is important to note that marketing plays a huge role in the success of large amounts of income through these activities as even though no constant effort is being put in daily or weekly, the intended audience and consumers will be providing by putting in their efforts to help you succeed daily.

Works Cited:

Chen, J. (2021, October 13). Passive income. Investopedia. Retrieved October 15, 2021, from https://www.investopedia.com/terms/p/passiveincome.asp.

Finance, T. F. (2021, February 7). Passive income for teens (making money under 18). - Get Money. Buy Income. Live Free! Retrieved October 15, 2021, from http://tightfistfinance.com/passive-income-for-teens-making-money-under-18/.

The Tax Adviser. (2010, December 1). Increasing passive activity loss deductions with self-charged interest. The Tax Adviser. Retrieved October 15, 2021, from https://www.thetaxadviser.com/issues/2010/dec/casestudy-dec2010.html#:~:text=Self%2Dcharged%20interest%20is%20interest,ownership%20interest%20in%20the%20corporation.