Some individuals consider portfolio income, such as interest and dividends, as passive sources of income. What passive income means is that it involves no action on the part of the investor. Other sources of passive income are earnings from things like rental properties, limited partnerships, or other business enterprises in which an individual is not directly involved.
Dividend paying stocks provide a passive income to an investor simply because they are held in the portfolio. The company board of directors determines dividends and the cash is distributed to the shareholders of record. Dividends paid via additional shares of company stock are indirect sources of passive income. They allow the investor to compound growth and receive increased returns.
In addition to dividends, capital gains can be considered passive income when stocks increase in value during the time they are held. Equity growth from a real estate holding is another form of passive income. The longer an individual holds the property, bad markets aside, the more equity he or she gains in the investment. Another item that some call passive income is revenue from the advertising components of blog Web sites. The blogger does not need to write a blog post to get advertising income from the blog site.
Passive income is usually taxable but is often subject to a different tax treatment by the Internal Revenue Service (IRS). For example, cash dividends are taxable by the IRS only if they amount to $10 or more during a calendar year and not all stock dividend issuances are considered dividends by the IRS. An individual should consult with an accountant or tax preparer to get further information regarding the tax treatment of different types of passive income.
There are only so many hours in the day that an individual can spend actively working to earn wages. Sources of passive income provide a way to put more money in the bank without having to do any work. Building additional passive income streams into the financial portfolio allows an individual to move forward financially. Some people even have a goal to live off the passive income provided by dividends during their retirement.
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Dividend investing is the only way I invest, and here's why: dividend stocks create a secure, passive income, and are less risky than non-dividend investing.
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