ACTIVE INCOME
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A service is performed for a payment.
Summary
Active income refers to earnings that come from direct participation in work or business activities where you exchange time, effort, or services for payment. This includes wages from employment, fees from consulting, commissions from sales, and profits from businesses where you actively participate. It's called 'active' because it requires your ongoing involvement and stops when you stop working.
Usage Context
Understanding active income is crucial when studying tax implications, retirement planning, wealth building strategies, and distinguishing between different income streams for financial planning purposes.
Common Confusions
- Thinking that all business income is active income (some can be passive)
- Confusing active income with investment returns
- Believing that working remotely makes income passive
- Assuming rental income is always passive (can be active for real estate professionals)
- Mixing up active income with recurring income
