Income and Taxation: Understanding Different Types of Income
Lydia and John Wickham's Tax Situation
The Wickhams underpaid their taxes by $2000 in year 1 according to information obtained by the IRS late in year 2. Year 1 saw Lydia and John both working and earning an identical amount of money, however John got $2000 less tax deducted than Lydia did.
What are the different types of income?
Earned, passive, and portfolio income are the three basic types of income. Earned income consists of salaries, tips, commissions, and wages. Potential passive and unearned income sources include limited partnerships, rental properties, and royalties. Interest, dividends, and investment capital gains are all types of portfolio or investment income.
What does the term "income" mean?
Earnings is the amount of money received as compensation for work, whereas income is the entire amount of money received, which includes wages, benefits, pensions, and other payments.
What are the different types of income? What does the term "income" mean? Earned, passive, and portfolio income are the three basic types of income. Earned income consists of salaries, tips, commissions, and wages. Potential passive and unearned income sources include limited partnerships, rental properties, and royalties. Interest, dividends, and investment capital gains are all types of portfolio or investment income. Earnings is the amount of money received as compensation for work, whereas income is the entire amount of money received, which includes wages, benefits, pensions, and other payments.