Unearned Income: 9 Types You Need to Know About
Many people dream about living off passive income. The concept of working hard and creating a perpetual stream of income is appealing.
The IRS considers most sources of passive income as unearned income. Learn how this differs from earned income in this story.
1. Investment income
This is the profit generated from the sale of real estate or stocks. It also comes from interest on savings, money market accounts, CDs, and dividends.
2. Long-term capital gains distribution
Mutual funds pay capital gains distributions to shareholders. You can also find this unearned income when you sell stocks, bonds, and other assets.
3. Dividend income
Companies pay shareholders dividends rather than reinvest the profits in the company. You can normally reinvest your dividends if you don't want to pay tax on it.
4. Retirement income
This is income from pensions, annuities, and distributions from your 401 (k) plan and IRA. Some forms of social security benefits are included in this category.
5. Alimony and child support payments
Both alimony and child support are considered unearned income but they're taxed differently.
Tap the link below for more of the 9 types of unearned income you need to know about.
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