We have been taught in school that income is financial gain that accrues over a period of time. However, income may be earned or unearned, active or passive.

Any income that accrues from investments and sources other than employment services is termed as unearned. Unearned income is slightly different from passive income. Passive income is income that does not require much effort to maintain. Some of the businesses that generate passive income include:

Internet Marketing/Affiliate Marketing

Much of the current focus on passive income can be attributed to the popularity of the relatively new concept of affiliate marketing that has evolved in Internet marketing. Internet marketing is promotion of products over the Internet. Affiliate marketing is a business model where you get paid by a web store for each customer that is routed through your website. This is accomplished with minimum effort by placing advertisements on your website.

Rental Income

Income from rent is the most common form of passive income. Once you have invested in a residential or commercial property, it does not require a major effort to maintain it. In many cases property owners shift the responsibility of maintenance and upkeep to the tenants or outsource to an agency that collects as well as maintains the property in optimal condition.

Income from Enterprises

While profit falls under the category of active income, if you are a sleeping partner that is not actively involved in running the business then it is considered to be passive income. The business may be a limited liability partnership or any other enterprise where you are just an investor. However, it is passive income only in the economic sense. The IRS does not treat it as passive income and treats it differently.

Dividend

Any dividend that you receive from the companies whose stocks you own are passive income. Your involvement in the business is nil as you own only a miniscule percentage of shares. However, even if you own a substantial percentage of shares and also actively involved in business operations, dividends are still unearned income. The salary or director’s fee that you get from the company is active income.

Interest

The most common form of passive income is interest. It may be interest that you get on the amount lying in a bank account or interest from bonds or any other interest yielding financial instrument is passive income. Such income is normally referred to as portfolio income but you need to keep in mind that in USA portfolio income is a different type of passive income.