Passive income or loss are earnings or losses of an individual derived from a rental property, limited partnership or other activity in which the individual is not actively involved. Passive income and loss are treated differently than non-passive income or loss for tax purposes.
There are three main types of income: active income, passive income and portfolio income. Passive income does not include active income such as earnings from wages or active business participation. Passive income also does not include portfolio income such as income from dividends, interest or capital gains.
There are three main types of income: active income, passive income and portfolio income. Passive income does not include active income such as earnings from wages or active business participation. Passive income also does not include portfolio income such as income from dividends, interest or capital gains.
Passive and non-passive income are generally taxable. Passive losses can be deducted from passive income for tax purposes. But passive losses generally cannot be used to offset active income or portfolio income.
It is important to know what type of income and loss is being generated by your business and investment activities. It does you little good to hold investments that are producing passive losses if you have no passive income to offset the losses against. You should review your business and investment portfolio with your tax or investment advisor from time to time to make sure you have the right mix. Call or email me if you have any questions about passive income or loss. Jsenney@pselaw.com or 937-223-1130.
It is important to know what type of income and loss is being generated by your business and investment activities. It does you little good to hold investments that are producing passive losses if you have no passive income to offset the losses against. You should review your business and investment portfolio with your tax or investment advisor from time to time to make sure you have the right mix. Call or email me if you have any questions about passive income or loss. Jsenney@pselaw.com or 937-223-1130.
AND ONE MORE THING. When "C" corporations sell assets, the corporation pays tax on the gain, and then the shareholders pay tax on the money distributed to them. This double tax effect can be eliminated if the selling corporation is an “S” corporation rather than a “C” corporation. So owners of a “C” corporation who are considering selling their business in the future should consider converting to an “S” corporation. If you want to know more “S” corporations or built-in gain, please give me a call. Jsenney@pselaw.com or 937-223-1130.
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