Portfolio income refers to income generated by investments, such as dividends, interest, royalties, and capital gains. It can be derived from stocks, bonds, mutual funds, real estate investment trusts (REITs), among other investment types. Portfolio income is one of the three types of income a taxpayer can receive in the United States, along with active and passive income. Most commonly, this term arises in relation to taxable income. It’s considered to be less taxing than other types of income and can be a good way of generating wealth over time.
Related Questions
1. What are some examples of portfolio income?
The prominent examples of portfolio income include dividend income from stock shares, interest earned on savings, CD’s or bonds, capital gains from selling stocks, bonds, or mutual funds at a profit, and royalties from various forms of intellectual property.
2. How is portfolio income taxed?
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In the United States, portfolio income such as dividends and capital gains are taxed differently than ordinary income. Traditionally, qualified dividends and long-term capital gains have enjoyed lower tax rates, which max out at 20% as opposed to 37% for ordinary income.
3. How is portfolio income different from passive income?
While both come from sources other than employment, portfolio income is derived from investments such as stocks and bonds, while passive income is from enterprise in which a person is not actively involved. This could be from a rental property or a partnership in a business where their participation is limited.
4. How can I increase my portfolio income?
You can increase portfolio income by diversifying your investments, reinvesting your earnings, periodically reviewing and adjusting your portfolio, investing in high-yield dividend stocks, or bonds, and using a tax-efficient investment strategy.
5. Is portfolio income the same as unearned income?
Although they are often used interchangeably, unearned income is a broader category that includes portfolio income. Unearned income refers to income not earned through employment or business activity, including portfolio income, along with other sources like inheritances, pensions, or lottery winnings.