Wealth is a Choice

I have always understood passive income in relation to real estate. I have used this term a lot online so I decided to do a little checking of what the IRS calls passive income. You really need to talk to a tax professional of how to structure your income online if it is passive or not. I have copied a chart from the IRS website and it has to do with form 8582. Look at this table and see what you understand?.

Webster’s dictionary says under “passive”#4 “business, finance non-interest-bearing, as certain bonds, but having some other stated or implicit benefit.” That was the business definition, the normal definition reads like this, #1 influence or acted upon with out exceeding influence or acting in return: in active, but acted upon. #3 taking no active part in active. So I have to admit that I was wrong in using passive income for on online business, but again I am not an accountant and I do not understand all this. I think the point here is income from a business which the tax payer works, i.e. materially he participates is not passive income. So what that really means is you pay Social Security taxes of 15% on all the money you generate online. But in real estate the government still allows you to take that as passive income, because most of the time you don’t participate in the day to day management and even if you do that other tax laws cover that..

Passive income, why do so many people use that term online including myself? I think it is because we do not understand what the tax code really says about passive income. That is why I put this on my page. I will write another page on residual income and I may do some research about the tax codes on that page. The way most people think of passive income is income generated from your labor. To me it’s like writing an e-book and then selling it. Say it took you one week to write, edit and publish your e-book, that was the labor you put in. Now you sell that e-book for an amount online, but then sales go on for years, and that may be a form of passive income.

So inactivity means something is passive, so if your active in the sales of your product, does the IRS consider it passive income on affiliate products, if you publish your book on click bank, and other people sell it for you is that passive income and why? So many people use six forms of passive income or more in their offers, it is a form of passive income because we are really not trading hours for every dollar. We all will put in time to create products, to maintain our websites and to drive traffic to get sales. Will the IRS consider it as passive income or will they say no? Passive income, that is the question.

I know I have used passive income a lot in my articles and my writings, but in this new light of the IRS code for the 8582 income form where the tax payer participates and is not considered passive income. That is my understanding as I read this, but your accountant would be the one that knows all the tax codes and the ins and outs of passive income and the laws. And I will say thisn not every accountant understands passive income. If you are in real estate you look for an accountant that understands all the real estate laws and the ins and outs. If you have a business small or big you look for the right accountant that understands the business law’s and their ins and outs.

Now with the Internet growing and so many online businesses developing I am sure there will be accountants that specialize in Internet marketing taxes and the loopholes of passive income online. I wrote this post “Passive Income Why” to deal with our understanding of passive income. On one of my other pages of “Making Money Work for You” I realized that I did not understand the IRS code on passive income so I looked them up. I will probably write an article about some of this and hopefully we’ll get some accountants and tax professionals responding to the articles and giving more understanding of what passive income online is all about, and if the IRS accepts it as passive income on a different form other than 8582 .

One thing I have learned in all my studying, that it is passive income that you do want to create because it’s taxed at a much lower rate, and you do not have to pay any social security or withholding taxes on passive income. And as a self-employed contractor I know I paid about 50% of my earnings in taxes, and they say you work from January till May to pay your taxes then the rest is yours. Passive income why, because you save on taxes and it’s been a loophole of the rich for many years. I am sure the IRS will have to make special rulings to go with the Internet business, but they gave the discount to passive income in real estate because were supplying houses, homes and apartments for people to live in. I do not mind paying taxes, but like everyone else, I want to pay as little as possible and earn all the tax benefits I can, so I will be looking for a good accountant because of my online business.

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