Active vs. Passive vs. Portfolio Income: What’s the Difference?

If you’re not quite sure of the difference between active, passive, and portfolio income, this article is for you.

It’ll help you understand what makes each one distinct and provide insight into which income source or sources to target.

Active, Passive, & Portfolio Income Explained

The main distinctions between these income types are how you earn your money and how those earnings are taxed.

Active Income aka Earned Income

When you perform a service for payment in the form of salary, wages, commissions, or tips, you’re earning active income. You’re either an employee or self-employed and time quite literally equals money.

If Diane clocks in at the office from nine in the morning to five, her employers pay for her time and effort. This means that her paycheck counts as an active income. The same goes for Sandy, the realtor, Stacy, the food service worker, and Michelle, the bank manager.

They all actively work for a profit, paid as a direct return on their performance of job responsibilities.

Regular compensation is one nice perk of active income. You might also be rewarded for your work efforts with a benefits…