What’s Passive Income? It’s Not What Influencers Say It Is. (2023)


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Misconceptions about passive income abound, namely that it’s easy to earn.

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What’s Passive Income? It’s Not What Influencers Say It Is. (1)
(Video) The Passive Income Scam And The Landlord Influencers Of TikTok

Luca Alboretti was enticed by the thought of making money in his sleep.

He was looking to supplement his income as a real estate agent in 2018 when he created an online store selling golf products, an idea he had hatched after watching a YouTube video about how to earn $150,000 a year in “passive” income selling salt and pepper shakers online.

“I thought I would wake up to a couple of hundred orders, fulfill them and collect my profit,” said Mr. Alboretti, 28, who lives in northern New Jersey.

He spent about $5,000 on sourcing and testing the golf products, developing a private-label product and paying website management fees. He put in about 10 hours setting up his online store, writing descriptions for each item, communicating with suppliers and marketing his site.

Yet a year later, Mr. Alboretti had made only $300 in sales. He closed the store and began using the Instagram page he had created for it to share humorous real estate content he made instead. “I worked hard to get my couple of hundred followers and didn’t want them to go to waste,” he said.

That morphed into ActuallyAgents, a multiplatform social media brand that is known for its clever memes on Instagram and free educational resources for real estate professionals and lead generation services for brokers in the United States and Britain.

(Video) The Passive Income Scam

ActuallyAgents has become Mr. Alboretti’s full-time job. “The courses, videos and social media content don’t create themselves,” he said. “None of this is passive.”

Search “passive income” on YouTube, TikTok or Reddit and you’ll find a wealth of videos by people claiming they make thousands of dollars each month this way — whether they sell courses, e-books or other products online; offer property on short-term rental platforms like Airbnb and VRBO; or even buy and maintain vending machines in high-traffic buildings. The allure: Theoretically, it’s easier than a traditional 9-to-5 “job.”

“We live in a passive-income-obsessed culture,” said John Boyd, founder of MDRN Wealth, a financial planning firm in Scottsdale, Ariz.

This preoccupation with making money effortlessly, he said, is fueled by investors in their late 20s to early 40s, who are understandably frustrated that they aren’t in the same financial position their middle-class parents were at their age and are looking for easy ways to catch up. But investing several thousand dollars to buy a vending machine that pays out just a few hundred a month, or overextending yourself by taking out a 10-year mortgage to buy a rental property, isn’t the best way to create long-term wealth or to save for retirement, Mr. Boyd said.

While many people claim to be making passive income, particularly on social media, only 20 percent of American households earn such income — either through dividends, interest or rental properties, according to Census Bureau data. And the median amount that those households make from those sources is $4,200 a year, according to bureau figures.

So, what is passive income?

The Internal Revenue Service defines it as trade or business activity that you don’t materially participate in, meaning you aren’t involved in its operations on a continual and significant basis. However, the I.R.S. does consider rental real estate activities a source of passive income as long as the property owner isn’t a real estate professional.

Yet there is much confusion about what qualifies. What people often call “passive income” is income that isn’t dependent on a single paycheck or employer, said Kevin J. Brady, a vice president at Wealthspire Advisors in New York City. In some cases, without understanding the difference, people are talking about leveraged income — putting in time and effort in advance to earn recurring profits from selling, say, an online course or an e-book — or additional revenue from a side hustle (that is, more work).

Although the I.R.S. recognizes renting property as a way to create passive income, people often underestimate the time and money needed to buy and maintain that property. Unexpected repairs and expenses can eat into rental profits. As the property owner, you’re on the hook to pay property taxes and insurance costs, and if the property is in another state, you might need to pay someone to manage it.

“What will you do if you’re hoping that tenants will pay the monthly mortgage on your rental property, but you don’t have any tenants and you can’t pay the mortgage yourself?” Mr. Boyd said.

Extra income isn’t passive


(Video) PASSIVE INCOME DEBUNKED | Myth VS Reality [2022]

Gina Vanegas and her husband, Andres Velasquez, have experience developing multiple income sources, including ones that generate leveraged income.

About 20 percent of their total income derives from two rental properties they own in Atlanta. The couple each owned a home there before they moved to California in 2015. Because they initially planned to return to Atlanta, they rented the properties to long-term tenants.

“It helped to fund my life as a student for several years,” said Dr. Vanegas, 37, a psychologist.

Dr. Vanegas is adding another revenue stream by developing an online course, the BIPOC Survival Guide to Graduate School, with a colleague. She also earns income by livestreaming workshops on vicarious trauma and leading with intention and inclusivity. Mr. Velasquez, 37, has a full-time job in corporate finance.

“Our goal for that income is to provide financial flexibility for our family,” said Dr. Vanegas, who owns Health & Inclusivity, a consulting firm in Santa Barbara, Calif., that helps organizations create an inclusive culture through assessment, evaluation and professional development.

That work will also supplement her retirement savings. “I do have a small 401(k), but having been a student for most of my life, earning a Ph.D., I feel behind,” she said.

Dr. Vanegas said she had initially felt a bit ashamed of that extra money, especially when family and friends would refer to it as “passive income,” implying that she didn’t have to do any work to earn it.

“Thinking specifically as a Latina, it’s ingrained in our stories to really have to work hard to get ahead,” she said. “Somehow passive income doesn’t count as hard work, but that couldn’t be further from the truth.”

For instance, Dr. Vanegas said, it takes about 10 hours to develop a one-hour online workshop. And being a residential landlord is labor intensive. Finding a long-term tenant isn’t always easy, and when something breaks, it needs to be fixed or replaced immediately even though she and her husband live more than 2,000 miles from the property.

The couple recently bought another property, in Mexico, that they hope to rent through Airbnb this year after they complete renovations, buy furniture and find a local manager. Dr. Vanegas estimates that they’ve invested several thousand dollars getting the property ready to rent.

(Video) the passive income scam

“I hear a lot of people say buy these properties and you don’t have to do a thing,” she said. “People don’t realize how much work it takes.”

Compound interest creates passive income

Stacy J. Miller, a financial planner, said she believed that the pandemic had further fueled workers’ desire to create passive income. Many Americans had more free time, and they started to question whether working a traditional job would provide them enough money.

“People want to earn extra money to save for retirement and to do fun things now, and that takes more time and energy than people have,” she said.

Ms. Miller’s two sons became interested in investing in January 2021 during the meme stock frenzy. At the time, her sons were still doing virtual classes at Georgia Tech, and all campus activities had been canceled. The headlines about amateur investors making money buying and selling GameStop stock on the Robinhood trading app grabbed their attention.

Every time GameStop’s stock rose, Ms. Miller’s sons called her to discuss how novice traders were making big bucks.

“It was a great learning experience,” said Ms. Miller, a vice president at Bright Investments in Tampa, Fla. She explained that the value of GameStop stock could easily plummet, and that if an investor sold the stock at its high, he would owe significant taxes.

“You could easily owe more than the money made on Robinhood when you factor in all the transaction fees,” she said.

Ms. Miller’s elder son, Jamie, 21, said the experience had “brought the idea of investing to my attention and doing things with your money rather than just put it in a saving account that won’t earn much interest.”

That lesson stayed with him, and during the summer of 2021 he decided to invest 20 percent of his internship salary. After talking with his mother, Mr. Miller made those investments within a Roth individual retirement account, which he opened when he was 19.

Last year, he contributed the maximum amount of $6,000, earned from another internship. If he continues to max out his I.R.A. contribution, he could have $4 million in his account by age 65, assuming a healthy 10 percent annualized return on his investment, Ms. Miller said. Even if he doesn’t contribute another dollar to his account, he could have $650,000 by age 65.

“Compound interest is absolutely one of the keys to the success of passive income,” Ms. Miller said.


(Video) 9 UNCOMMON Passive Income Ideas For 2023

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What are 3 forms of passive income? ›

Here are 10 of the best ways to earn passive income.
  • Dividend stocks. ...
  • Dividend index funds and exchange-traded funds. ...
  • Bonds and bond index funds. ...
  • High-yield savings accounts. ...
  • Rental properties. ...
  • Peer-to-peer lending. ...
  • Private equity. ...
  • Content.
Jan 23, 2023

What are examples of passive income? ›

Passive income includes regular earnings from a source other than an employer or contractor. The Internal Revenue Service (IRS) says passive income can come from two sources: rental property or a business in which one does not actively participate, such as being paid book royalties or stock dividends.

What is the easiest source of passive income? ›

If you're interested in earning passive income, here are some unique avenues to explore.
  • Sell your pictures to stock photo websites.
  • Rent out your car (to people or advertisers)
  • Invest in dividend stocks.
  • Rent out parts of your property.
  • Share your expertise.
  • The takeaway.
Dec 29, 2022

How does the IRS treat passive income? ›

Tax Treatment of Passive Income

The IRS usually taxes passive income at the same rate as salaries received from a job. However, certain sources of income may be taxed at a different rate and it is sometimes possible to use deductions to reduce the liability.

What does the IRS consider passive income? ›

Passive activities include trade or business activities in which you don't materially participate. You materially participate in an activity if you're involved in the operation of the activity on a regular, continuous, and substantial basis.

How can I make 10k monthly passive income? ›

Making 10k a month is something many people wish for, but it's not that easy if you are working a day job.
How to Make 10k a Month [11 Ways]
  1. Start Dropshipping with Shopify. ...
  2. Offer Freelance Writing Services. ...
  3. Start a Bookkeeping Business. ...
  4. Open a Custom Pins Shop Online.
Jan 1, 2023

Where can I put my money to make passive income? ›

As a source of passive income, options like index funds, mutual funds, and exchange-traded funds (ETFs) can also help beginners prosper as high-yield savings accounts.

What can I sell as a side hustle? ›

What are the most profitable side hustles to make money?
  • A dropshipping business.
  • Selling your own handcrafted products.
  • Creating and selling your own designs.
  • Selling services as a freelancer.
  • Teaching an online course.
  • Selling digital information products.
  • Starting an affiliate marketing business.
Nov 30, 2022

How can I make 500 a week passively? ›

Other passive income stream ideas:
  1. Start a Shopify store.
  2. Open a savings account that pays you. ...
  3. Open an Airbnb *See how much you could make*
  4. Use affiliate marketing on social media.
  5. Create a course with Teachable (although running a blog may help imrpove sales)
  6. Try Acorns investing.
  7. Open an Amazon FBA store.

How can I avoid paying tax on passive income? ›

Use Tax-Deferred Accounts

By keeping assets in tax-deferred accounts like IRAs and 401(k) plans, you won't have to pay tax on your income and gains until you withdraw the money from the account. In the case of a Roth IRA, you may never have to pay tax on your distributions at all.

Does passive income affect Social Security? ›

No. Social Security only counts income from employment towards the retirement earnings test. Other kinds of income — including income from rental properties, lawsuit payments, inheritances, pensions, investment dividends, IRA distributions and interest — will not cause benefits to be reduced.

Can the IRS see your income? ›

How the IRS collects information about income. In most cases, your information gets red-flagged by a system called the Information Returns Processing (IRP) System. This is a huge database that reviews the earnings you report (or don't report). It compares your stated income to the information third parties provide.

Which states do not tax passive income? ›

As of 2022, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming are the only states that do not levy a state income tax.

Is Amazon a passive income? ›

Yes, Amazon can be a great place to earn passive income. Amazon in particular is so good for passive income because they make it easy to fulfill orders and have systems in place that allow the seller to be more passive in the process.

What kind of income is not taxable? ›

The following items are deemed nontaxable by the IRS: Inheritances, gifts and bequests. Cash rebates on items you purchase from a retailer, manufacturer or dealer. Alimony payments (for divorce decrees finalized after 2018)

What passive income ideas will be popular in 2023? ›

(Dividend stocks, peer-to-peer lending, real estate). Asset Building. Acquire assets that generate income passively over time. (Affiliate marketing, digital goods, photo, and music licensing).

Can passive income make you rich? ›

Believe it or not, passive income is the primary source of income for most of the richest people in the world. Making money with minimum effort, reinvesting it wisely, and watching spending is vital for getting rich, so passive income streams are an essential part of any wealthy entrepreneur's portfolio.

How do I make passive income with little money? ›

Even sharing your photos of your favorite trips can be a way to earn extra cash if you do it right.
  1. 5 ways to earn passive income. ...
  2. Sell your pictures to stock photo websites. ...
  3. Rent out your car (to people or advertisers) ...
  4. Invest in dividend stocks. ...
  5. Rent out parts of your property. ...
  6. Share your expertise.
Dec 29, 2022

How to earn $100 dollars a day? ›

Alright let's get into the list,
  1. How to Make 100 Dollars a Day. Provide Proofreading Services. Combine a Few Small Side Hustles. Become a Virtual Assistant. Write and Publish an eBook. Make $100 a Day By Renting Out Your Car. Share Your Home with Airbnb Guests. Become a Freelance Writer. Buy and Sell Domain Names. ...
  2. Conclusion:
Jan 20, 2023

What are the 7 sources of income? ›

7 Income Streams That Make Millionaires Rich
  • Capital Gains From Appreciated Assets. ...
  • Dividend Income. ...
  • Interest Payments. ...
  • Rental Income. ...
  • Business Income. ...
  • Earned Income. ...
  • Royalties and Selling Rights.
Oct 31, 2022

How to make 2k a month? ›

How Can I Make an Extra $2000 a Month?
  1. Become a Blogger and earn with affiliate marketing. ...
  2. Offer Proofreading Services. ...
  3. Complete paid online surveys for money. ...
  4. Earn money by testing apps and websites. ...
  5. Freelance Graphic Designs. ...
  6. Transcribe videos, phone calls, and other recordings. ...
  7. Become an online tutor.

How to make $2,500 a month in passive income? ›

Here are five ways I make over $2,500 in passive income every month.
  1. Cash-back rewards. An easy way I've been making passive income lately is through cash-back credit cards and websites. ...
  2. Investing in small businesses. ...
  3. Peer-to-peer lending. ...
  4. Print-on-demand merchandise. ...
  5. Selling ads.
Aug 4, 2022

How can a beginner make money online? ›

What's the easiest way for beginners to make money online?
  1. Get involved in market research.
  2. Become an online tutor.
  3. Sell your clothes and other belongings.
  4. Become an affiliate for your favorite brands.
  5. Start a dropshipping online business.
  6. Transcribe recordings.
  7. Rent out your stuff.
Nov 28, 2022

How to earn passive income with Amazon? ›

Best Ways To Make Passive Income On Amazon
  1. Through Amazon FBA private labeling.
  2. Amazon affiliate marketing.
  3. Sell ebooks on Amazon KDP.
  4. Amazon dropshipping.
Sep 4, 2022

How to make $200 dollars in one day? ›

Top 25 Ways to Make $200 a Day
  1. Take Online Surveys.
  2. Invest.
  3. Deliver food.
  4. Freelance on Fiverr or Upwork.
  5. Pet Sit.
  6. Babysit.
  7. Be an Airbnb Host.
  8. Take Jobs on TaskRabbit.

How to make money everyday? ›

Learn more about what you could do to earn an extra income in as short as one day with these thirty-three ideas.
  1. Drive With Uber or Lyft. ...
  2. Presell Your Labor. ...
  3. Perform Seasonal Jobs. ...
  4. Sell Your Clothes. ...
  5. Become a Tutor. ...
  6. Sell Your Furniture. ...
  7. Have a Yard Sale. ...
  8. Sell Your Books.
Jan 31, 2022

How can I make money in one hour? ›

Sell something of value
  1. Sell your gently-used clothes to a thrift store. ...
  2. Sell sought-after gear to a pawnshop. ...
  3. Sell gold or other precious metals. ...
  4. Sell your spare change. ...
  5. Walk a dog or feed a pet while your neighbor is away. ...
  6. Babysit a kid for a great hourly rate. ...
  7. Whip your neighbor's yard into shape.

How to generate $5,000 a month passive income? ›

  1. 6 Ideas to Make $3000–5000 Per Month in Passive Income. ...
  2. Run a blog and use ad revenue. ...
  3. Outsourcing. ...
  4. Create an ebook or course. ...
  5. Write and publish an ebook. ...
  6. Create a software product. ...
  7. Residual Income With Review Sites.
Aug 20, 2022

Is passive income legal? ›

In a word: yes. As with active (earned) income, passive income usually qualifies as taxable. However, passive income can receive different treatment from the IRS, as discussed more below. Portfolio income is considered passive income by some analysts, so dividends and interest would therefore be considered passive.

What is the best second stream of income? ›

If you are thinking for the long term, building and diversifying an investment portfolio may be the single best way to create a secondary stream of income. You can seek out income-oriented assets, such as bonds and stocks known to pay dividends.

What's the easiest side hustle? ›

27 Side Hustle Ideas
  1. Drive for Lyft or Uber. If you like driving, people, and working when you want—check out Lyft or Uber. ...
  2. Deliver food. ...
  3. Deliver groceries. ...
  4. Become a photographer. ...
  5. Tutor online. ...
  6. Become a transcriptionist. ...
  7. Join a focus group or take surveys. ...
  8. Teach English.
Jan 13, 2023

What is the cheapest side hustle to start? ›

15 Inexpensive Side Hustle Ideas
  1. Selling an Online Course. ...
  2. Narrating Audiobooks. ...
  3. Tutoring. ...
  4. Selling Handmade Items on Etsy. ...
  5. Building Websites with WordPress. ...
  6. Renting Your Clothes Out to Others. ...
  7. Flipping Furniture. ...
  8. Get Paid for Your Social Media Posts.
Sep 21, 2022

How to make money without a job? ›

11 ways to make money without a real job
  1. Get paid to test websites.
  2. Become a crowdworker.
  3. Design and sell t-shirts.
  4. Work as a transcriber.
  5. Shop for others.
  6. Sell crafts online.
  7. Get paid to pet sit.
  8. Sell your photos online.
Feb 8, 2022

How can I make money just sitting? ›

10 Simple Ways To Make Money Sitting On Your Couch
  1. It's a typical night, you settle down to watch your favourite show on Netflix and it's good. ...
  2. 1 – Start Your Own Blog or Website. ...
  3. 2 – Start Using SwagBucks for Everything Online. ...
  4. 3- Answer Surveys for Extra Money. ...
  5. 4- House sitting. ...
  6. 5- Babysitting or Petsitting.

How can I make passive income on my phone? ›

Below is a list of how to make money from your smartphone.
  1. Install a Passive Income App. ...
  2. Sell your Skills Online. ...
  3. Working As an Online Freelancer. ...
  4. Work For a Driving Service. ...
  5. Working As a Customer Service Agent. ...
  6. Getting Paid to Watch Videos, Browse the Internet and Play Games. ...
  7. Setting Up a Lock Screen. ...
  8. Investment Applications.
Sep 21, 2022

How much is $100 dollars a day for a year? ›

$100 daily is how much per year? If you make $100 per day, your Yearly salary would be $26,047. This result is obtained by multiplying your base salary by the amount of hours, week, and months you work in a year, assuming you work 40 hours a week.

How can I generate 500K passive income? ›

The Best Ways To Invest $500K Right Now
  1. Stocks & ETFs. One of the most common ways to start investing is to build a portfolio of various stocks and exchange-traded funds (ETFs). ...
  2. Work With a Financial Advisor. ...
  3. Real Estate. ...
  4. Mutual Funds. ...
  5. Use a Robo-Advisor. ...
  6. Invest in a Business. ...
  7. Alternative Investments. ...
  8. Fixed-Income Investments.
Jan 20, 2023

How can I make 100k passive income? ›

How to Invest 100k for Passive Income
  1. Invest in Stocks.
  2. Invest In P2P Lending.
  3. ETFs and Mutual Funds.
  4. Annuities.
  5. Emergency Funds.
  6. Invest Through a Robo Advisor.
  7. High Yield Savings Account.
  8. Invest in Cryptocurrencies.

How can I make 20k as a passive income? ›

Here are the Top Ways to Earn a Passive Income
  1. Investing in Rental Properties. Real estate investing is one of the best known ways to earn a passive income. ...
  2. Rent out your Home. ...
  3. Investing in Stocks. ...
  4. Selling Digital Products. ...
  5. Affiliate Marketing Schemes. ...
  6. Become a POSP Insurance Agent.

How can I make 1000 dollars fast in a week? ›

How to Make $1000 a Week: 17 Fast & Easy Ideas
  1. Take online surveys.
  2. Earn cash back shopping.
  3. Run Facebook and Instagram ads.
  4. Become a food delivery driver.
  5. Deliver groceries.
  6. Share your space.
  7. Sell your stuff.
  8. Cancel your subscriptions.
Aug 3, 2022

How can I make 1000 dollars fast in a month? ›

  1. 47 Best Ideas for How to Make an Extra $1000 a Month.
  2. Become a Virtual Bookkeeper from Home. ...
  3. Combine a Few Small Side Hustles. ...
  4. Make $1,000 a Month Freelancing. ...
  5. Blogging Your Way to $1,000 a Month Online. ...
  6. Virtual assistant. ...
  7. Selling on eBay. ...
  8. Invest in real estate.
Dec 10, 2022

What are the 3 most common types of income? ›

In this article, we will have a closer look at the three types of income as well as their impact on the financial health of a person.
  1. Income #1: Earned Income. This is the primary source of income. ...
  2. Income #2: Investment Income. ...
  3. Income #3: Passive Income.

What are 3 potential sources of income? ›

Academic research shows that, over our lifecycle, we can generate income from three major sources: human capital, social capital and financial capital.

How do I start passive money? ›

23 Passive Income Ideas to Build Wealth (2023)
  1. Start a dropshipping store.
  2. Build and monetize a blog.
  3. Create and sell online courses.
  4. Publish Instagram sponsored posts.
  5. Create a print-on-demand store.
  6. Create an app.
  7. Invest in stocks.
  8. Buy and sell properties.
Nov 20, 2022

What is the least taxed income? ›

Here are 15 examples of non-taxable income.
  • Foster care payments. ...
  • Financial gifts. ...
  • Illness and injury benefits. ...
  • Inheritance. ...
  • Interest on municipal bonds. ...
  • Life insurance death benefit. ...
  • Principal residence proceeds. ...
  • Roth IRA income.
Jan 3, 2022

What is income without working called? ›

Passive income is earned with little or no effort, and individuals and companies often make it regularly, such as an investment or peer-to-peer (P2P) lending. The Internal Revenue Service (IRS) distinguishes it from earned income as money earned from an entity with which you have no direct involvement.

What are 7 streams of income? ›

Earned (salary), profit and capital gains incomes are forms of active income, while dividend, interest, rental, and royalty incomes are forms of inactive income.


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