It’s also known as passive income since the passive earner merely expends little physical effort to increase the income. Examples of passive income are any kind of business activities where the person does not physically participate and receive payment.
High yield savings accounts offer a high yield passive income stream. When you invest money in a high yield savings account, you are given a predetermined interest rate and the option to purchase or sell fixed portfolios at a pre-determined price on a specified date in the future. If you decide to buy a portfolio and you make a profit, you can withdraw the amount you’ve earned by selling it. If you don’t want to sell it, you still keep the interest paid on it and because it’s part of a high yield investment portfolio, it continues to earn interest even if you don’t have an intention of buying it.
Most people are familiar with dividend stocks and passive income from mutual funds such as the blue chip stocks. However, there are other ways to generate passive income. Some mutual funds will give their shareholders a right to receive a share of the profit of the company but only if the shareholder agrees to the payouts. If you’re able to invest in companies that do not pay dividends but have steady production, your portfolio income could be passive income from regular operations.
Another passive income stream is property income. This type of income involves the sale of real estate without making any upfront deposits. The passive income generated in this way depends on the price of the property when you sell it. On the other hand, earned income from unearned income such as cash payments does not require any minimum or maximum amount of the purchase amount. If you can buy a property at a price higher than your earning limit, you can use the money for your home or business.
Passive capital gains are another example of unearned income. Unlike dividends, capital gains occur when you make money on your investments. Capital gains are included in Gross income on your tax return when you earn above a certain amount of money. You need to pay tax on capital gains, even though you did not actively own the property during the period of time when you had a capital gain. In case you were still renting the property, capital gains are only applicable if the rent amount you received was higher than your adjusted gross income before you had to pay tax on it.
Another good example of passive income streams is rental properties. Many investors own rental properties but only a few of them to make money out of it. If you have rental properties, you can let them sit vacant and earn passive income without doing any maintenance or renovating. The rent you get from vacant rental properties is called ‘up-front income’. In most cases, this kind of income will never face tax.