Types of Passive Income
Creativity, marketability, and sustainability are the hallmarks of passive income. Examples of the different types of passive income include:
- Tangible products such as CDs, DVDs, hardcopy books, or inventions
- Intangible products such as ebooks and other info products, seminars and training courses, and membership sites
- Residual income from ad revenues, commissions, affiliate sales, or revenue shares
- Investment income such as stock dividends, interest on savings or investments, and rental income
The beauty of passive income is that you can choose to develop your own products, services, or other offerings. Alternatively, you can form cooperative partnerships that allow you to earn passive income from sources developed by others. While investments are a wonderful form of passive income, few individuals have the assets necessary to achieve adequate investment income.
Self-Developed Passive Income Example
The first of two hypothetical passive income examples, this scenario provides an example of self-developed passive income for intangible products and services.
Sally is a successful professional business coach. She works one-on-one with small business owners to help them set and achieve their business goals. Her client roster is full, but she wants to find a way to increase revenues without raising her rates. After hearing about various passive income examples from other coaches, Sally finally has an answer to her problem.
She writes an ebook covering the ten most common mistakes she sees business owners making in regard to setting and attaining goals. She sells the book on her website, through her newsletter, and through an affiliate program. Additionally, she develops an online, self-paced workshop for potential clients, based on the book. Both of these intangible products provide a steady stream of passive income. The only additional work required is a few hours each week to market her products.
Cooperative Passive Income Example
In this second scenario, passive income examples include residual income from products and services developed by others, as well as ad revenues.
John owns a blog dedicated to hunters, fishermen, and outdoor enthusiasts. He posts several times a week with various tips, advice, and outdoor news. He often reads about new books, conferences, workshops, and products of interest to his audience. As such, he recommends his finds to his readers as well as reviewing new products on the market. While he loves his blog, he would love it even more if it actually made enough money to cover his hosting expenses and maybe a weekend trip now and then.
After learning about passive income examples from other bloggers, John develops a plan. Several of the products and books he recommends have affiliate programs that would allow him to earn a small commission on each sale generated from his site. Likewise, some of the outfitters he regularly recommends have expressed interest in placing ads for their adventure packages on his blog. With a little legwork and advertising, John is able to build up enough passive income from his blog to pay for hosting and sock away a little money towards his own outdoor adventure vacations. All of his blog income derives from products others have developed or ad revenues.
Find What Works for You
When it comes to passive income, you are only as limited as your imagination. While these examples are common ways to develop passive income streams online, you can create passive income in the real world as well. Frequent public speakers and workshop hosts can write books about their industry and sell them at speaking engagements. Professionals and tradesmen can develop paid workshops or training seminars based on their years of experience. Artisans and crafting enthusiasts can create patterns or kits from their favorite designs and sell them at shows, online, or through local boutiques. Each of these examples involves doing the majority of the work once, while reaping the benefits again and again.
Keep in mind, however, that while the income generated from passive activities may not require additional work, it is still income. The IRS has specific guidelines about passive income. Even if you do not actively participate in manufacturing, selling, advertising, or otherwise earning these revenues, they are still considered taxable income by the Internal Revenue Service.
References and Resources
The Tax Almanac https://www.taxalmanac.org/index.php/Passive_Activities
IRS, Passive Activity Income https://www.irs.gov/publications/p925/ar02.html#en_US_publink1000104597
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