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Simple English definitions for legal terms
passive income
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A quick definition of passive income:
Passive income is money that you earn without having to actively work for it. This can come from things like investments, rental properties, or businesses that you own but don't directly participate in. It's different from earned income, which is money you make from working a job or providing a service. Passive income can be a great way to build wealth and create financial stability.A more thorough explanation:
Passive income is money earned from a business, rental property, or other income-producing activity that the earner does not directly participate in or have immediate control over. It is different from active income, which is earned from one's own labor or active participation in a trade or business.
Examples of passive income include:
- Rental income from a property that is managed by a property management company
- Dividend income from stocks or mutual funds
- Interest income from savings accounts or bonds
- Income from a business in which the earner is not actively involved, such as a silent partnership
These examples illustrate how passive income is earned without the earner having to actively work for it. Instead, the income is generated through investments or other income-producing activities that require little to no effort on the earner's part.