Passive income

Passive income is an income received on a regular basis, with little effort required to maintain it.

The American Internal Revenue Service categorizes income into three broad types, active (earned) income, passive income, and portfolio income. It defines passive income as income from "trade or business activities in which you do not materially participate." Other financial and government institutions also recognize it as an income obtained as a result of capital growth or in relation to negative gearing. Passive income is usually taxable.

Some examples of passive income are:

• Earnings from a business that does not require direct involvement from the owner or merchant;
• Rent from property;
• Royalties from publishing a book or from licensing a patent or other form of intellectual property;
• Earnings from internet advertisements on websites;[citation needed]
• Residual income, repeated regular income earned by a sales person, generated from the payment of a product or service, that must be renewed on a regular basis in order to continue receiving its benefits;[citation needed]
• Dividend and interest income from owning securities, such as stocks and bonds, is usually referred to as portfolio income, which may or may not be considered a form of passive income. In the United States, portfolio income is considered a different type of income than passive income;
• Pensions.[dubious – discuss]

An Internet phenomenon

Edward de Bono in his book Handbook for the Positive Revolution states that "at some point value must be created in order to be distributed and enjoyed." There is a lot of real value on the Internet, and a lot of it is free to any websurfer. There is value in free information, free education, free entertainment, free socialization, and social interaction platforms. Since the beginning of the commercialization of the Web, entrepreneurs have been trying to find viable business models of selling the web content and services. Some of the problems of selling the online content can be attributed to high cost of software, high cost of qualified labour, expensive equipment, office space etc. These can be minimized in one person operations which use free software and have very small business overheads. In such cases, even a relatively modest income, together with frugal lifestyle, might be sufficient enough to form a basis for a viable passive income model.

Emerging cottage industry

With the advent of Web 2.0, the concept of a passive income became a nucleus of an informal grassroots, (bottom up) movement and an emerging cottage industry of loosely coupled, independent individuals, who use a combination of their life story, personality, interests, and practical knowledge, to produce an engaging content and an alleged passive income. Appearing honest, transparent, and promising nothing, these individuals report in their blogs, podcasts or websites, their income sources, methods and strategies they use, to any reader or listener, without any additional requirements. There are no registration, subscriptions, or any other kind of fees. They claim to obtain their income mainly through advertising, remuneration for referrals and recommendations, and through donations from appreciative readers. Steve Pavlina represents but one example of such activities; although, it is not clear how long a passive income generated in such a manner can remain so without any interventions, addition of new material, or site maintenance. The long tail effect could partly explain survival potential of such one person or family businesses.

Motivational vector

In psychology, this concept can also be perceived as a powerful motivational vector, similar to the desire to achieve financial independence, or to have greater freedom of choice.

Critique

Passive income has the potential to be used as an enticement for fraudulent internet scams. It can also involve independently publishing or self-publishing books containing knowledge or advices of non assessed value.

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