Three kinds of passive income to consider to boost your income.

Upon hearing the phrase “passive income,” many people think of money that comes in without having to work for it. In reality, it’s not that simple. Learn more about three types of passive income you could use to boost your income.

Passive income through investments

Of the three primary ways to generate cash outside of a job, investments are the most passive. Investments in this category include:

• Stocks
• Bonds
• Annuities
• Certificates of Deposit (CDs)
• High-yield savings accounts
• Rental properties

Passive income from investments comes from interest, dividends, annuity payments and rent.

The amount of work involved with passive income investments will vary. Do you hire a financial advisor or research stock and bonds yourself? Do you manage the rental property or delegate the responsibilities to a property manager. If you enlist experts, remember the cost of services will need to be factored into your calculation for potential income.

Passive income from something you create

There’s no end to the things you can create to generate passive income. For example, you could:

• Write a book and earn royalties on sales
• Monetize a YouTube channel featuring your own videos by generating income through subscriptions or advertising
• Sell your expertise through an online course
• Sell your photography through a stock photo service

The work with creative ventures like these comes in the initial creation and setting up a method of generating income. If you have a product that fills a need, you could be successful at building a passive income stream from something you create once and sell over and over.

Passive income from a business

Investing in a business or limited partnership is another way to generate passive income. As an owner of all or part of the business, you’ll benefit when the company turns a profit. Your income as a business owner is considered passive if you don’t materially participate in the operations.

Profit is not guaranteed for most investments

While some investments, such as high-yield savings accounts, CDs and some insured bonds, yield a specific rate of return if the agreed upon terms are met. You could experience a loss with riskier investments like stocks, things you create, rental properties and business ownership.

Is passive income taxable?

Yes, passive income is taxable and the rate of taxation varies based on how the income is generated. For example, interest, dividends and capital gains are classified by the IRS as portfolio income. Passive income earned from advertising on YouTube may be taxed at the same rates as employment income.

If you’re generating passive income, consult with a knowledgeable tax expert who can help you take advantage of allowable deductions and ensure you pay the proper rate. Also, prepare for tax payment by setting aside at least 20% of earnings.

Consumers provides banking services for more than 132,000 members. If you have banking questions, call us at 800-991-2221. We make it easy to bank how you want, when you want.

Federally insured by NCUA