Passive Income - 10 Extremely Important Things You Need To Know

Published by Timothy Olson — 10-31-2018 at 10:26 AM UTC

What is passive income? How to make passive income online?  A passive income stream that pays the bills every month is something everyone should try to build. It is not difficult when you know the basics.

As you learn about potential money-making home business opportunities, you’re eventually going to ask yourself “What is passive income?” 

While the concept of a passive income can be enormously appealing, particularly when you learn more about the definition and benefits, it is also important to understand the potential downsides.

A passive income can be a successful revenue stream. At the same time, it also provides a range of challenges and considerations.

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Defining Passive Income

A passive income is defined as any revenue stream in which the individual is not materially involved. This is how the I.R.S. defines the concept, although it is worth noting that there are a number of passive income possibilities that do not fall under the definition established by the I.R.S.

In creating an accurate passive income definition, you will be in a better position to appreciate your options. A passive income is defined as any type of income in which very little work is required of the individual.

This is certainly the most exciting part about a passive income. However, some people take this definition to imply that you do not need to work, in order to create this type of income. This is not true. In order to create your own passive income stream, you will need to create and execute the opportunity.

To that end, there are tons of online and offline options available to you. In terms of how to make passive income, your possibilities can be broken down into online ideas and offline ideas.


Is passive income taxable? Check with the I.R.S or the tax authorities in your own country about online income tax and how taxation works for you. There is a high chance you need to pay tax on your online earnings. Every country has different tax rules.

Keep in mind that the term can have a number of applications. In terms of “What is passive income”, there are a number of possibilities that you are going to want to be aware of.

When it comes to passive income possibilities, you will find that there are both online options and offline options. You can create an online service, invest in a rental property, and much more. Chances are, provided you are willing to put in the work, there are several different ways in which to generate a passive income.

Passive Income Challenges

When it comes to creating a clear definition to the question of “What is passive income”, one of the great misconceptions about the concept is that it refers to free or easy money. Passive income will not involve either of these things, although the revenue stream will eventually become easier to come by. However, in order to get to that point, you will still need to put in a significant amount of work.

This fact can be connected to any passive income idea imaginable. For example, if you want to make money from writing an eBook, you will obviously need to write the eBook first.

If you want to generate passive income from YouTube through an AdSense share, you will obviously need to make the YouTube channel first. If you want to invest in rental properties, you will need to first go through the process of acquiring the property, and then bringing it up to standards.

All of these scenarios need to make the following clear: For a passive income stream to be truly successful, you will need to put in some effort ahead of time. There are several other considerations with passive incomes that you are going to want to keep in mind.

5 Additional Passive Income Facts

Creating a passive income can take time, money, and effort. How much of these things you need to put towards your goal of creating a passive income source is going to depend on you. It will also depend on what you would ultimately like to achieve, in terms of creating a passive income source.

As you develop a more rounded answer to the question of “What is passive income”, you’re going to want to keep in mind a few more things:

  • Passive income is one of three main types of income. The other two are portfolio income and active income.

  • There are rare examples of passive income that demand very little work from the individual. These examples exist in the form of inheritances and lottery winnings. However, it is important to keep in mind the extraordinarily rare odds of either of those things occurring.

  • As is the case with any other type of income, it is important to remember that passive income is almost always taxable.

  • Passive income tends to be treated differently from other types of income, in terms of the I.R.S.

  • There are tax deduction opportunities that are unique to passive income.

Things To Keep In Mind With Passive Income Streams

A passive income can be a great way to generate additional revenue. In some cases, it is possible to create a passive income that someone can rely upon as their primary source of income. At the same time, you’re going to need to remember that the success of your passive income will almost always come down to how much work you’re willing to put into the endeavor.

One of the nice things about a passive income is how flexible the concept can be. You can seek out and take advantage of passive income options that can be utilized in your spare time. 

You can find opportunities that are unique to your specific talents. You can look to passive income ideas that can potentially provide you with a long-term, meaningful income.

In order to find a passive income source that’s right for you, do some research. Consider the time and money you have to invest. Define an answer to “What is passive income” in your own. 

Consider some of your talents and interests, and whether or not these things can be applied to the opportunity to begin generating your own approach to passive income.

In terms of passive income streams tips, there are several things that you will want to appreciate. One of the most important components to a passive income stream involves understanding exactly what the endeavor is going to demand of you.

Many people fail in their desire to create a meaningful passive income source. In many cases, the reason for this is simple: Those involved didn’t know what they were getting themselves into.

We’re not telling you to get ready for something that will be unpleasant, or next to impossible. You can create a passive income stream that meets your needs.

You simply have to remember that you will need to put in the time and energy that might be necessary to bring your passive income idea to life. The nice thing about passive income as a concept is that it’s pretty flexible. You can come up with something that will match your resources and interests.

In addition to the above, you will want to research the relationship between passive income streams and the I.R.S. In most cases, passive income is taxable. This is going to depend on how big the passive income stream turns out to be.

For example, if you started an online home business (one you don’t have to run yourself), or if you decided to invest in rental properties, this would be taxable income.

Finding Passive Income Streams That Are Right For You

Before you ever set down the path to creating your own passive income stream, come up with a list of pros and cons.  Add to this list a working idea (or better) of how much time and money you will need to invest. You may also want to try to take a long-term view of things.

How long do you want to work with this opportunity? How long are you willing to work? Where do you see this idea in one year? Two years. In answering these questions, you should be able to get a better idea of the passive income streams that are right for you.

Writing an eBook, recommending great affiliate products, or investing in a rental properties are just some of the ways in which you can build a passive income stream.

You can even invest in one or two brick-and-mortar businesses, hire someone to handle the management side of things, and group the businesses together for tax reasons.

There are a wide variety of possibilities out there. When you are capable of answering the questions that have been mentioned throughout this article, you should be able to narrow down that variety of possibilities to a considerable degree. You should be in an excellent position to choose one thing that’s right for you.

Challenges Of Passive Income Streams

In the end, the biggest challenge to any passive income stream idea is the misconception that you’re turning on a money faucet. 

The only way you can generate instant, effortless money from a passive income stream is if you inherit a significant amount of money (which you can then invest, which is another form of passive income), or if you happen to win the lottery.

Both of those things come with massive odds, in terms of whether or not they will actually happen, so it’s best to remain as realistic as possible.

To that end, you will want to keep in mind that the challenges of creating passive streams are often specific to that particular stream. 

To put it another way, the challenges of something like peer-to-peer lending are going to be quite different from the challenges of writing and sharing an eBook.

Investing in property rentals can be extremely lucrative, but it can also be tremendously challenging. At the same time, the challenges of maintaining something like a property rental are going to be quite different from the challenges of affiliate marketing.

While the challenges do exist, the rewards can be tremendous. When you do the research, and when you limit yourself to things that appeal to your resources and interests, you’re going to find yourself with a successful venture, more often than not. Passive income streams are definitely for real.

How To Make Passive Income Online - The Basics

In terms of how to make passive income, it’s important to understand two things. In the first place, unless you happen to subject to miraculously winning the lottery, passive income is not easy money.

It most certainly *is not* free money. While it is certainly possible to set up a powerful passive income course, the success will largely depend on your efforts. As long as you are willing to put in the time and effort, you can succeed at creating this kind of income.

The second thing you want to keep in mind is that when it comes to learning how to make passive income, there is no question that you’ve got options.

Learning How To Make Passive Income

In order to get to the point in which you are drawing a sizable passive income, you’re going to want to find something that’s right for you. 

For example:

#1. Investing in a rental property

When it comes to making passive income, rental properties remain an option that tops the list for a lot of people. It’s not hard to see why. You invest in the property, people rent it, and you bring in the money. While rental properties can generate tremendous passive income, you may find yourself taking on a sizable challenge.

Investing in a rental can demand time, money, and a great deal of your energy. You may also have ongoing challenges as a landlord, unless you hire a property manager. Nonetheless, when it comes to real ways to make passive income, rental properties are legitimate.

#2. Affiliate marketing

This would be an example of an online opportunity. With affiliate marketing, the idea is that others are going to pay you for running ads on your website. In theory, this is definitely a good example of how to make passive income. However, you will want to keep in mind that you need to have a great website to draw people in. 

#3. Write an eBook

Again, you’re talking about something that will demand a certain amount of your time and energy. However, if you have a fantastic idea for an eBook, you may want to consider this possibility.

A successful eBook can not only keep the money coming in, but it can encourage you to begin writing other books. 

#4. Create an app/game

Most of us use our tablets or smartphones for just about everything these days. Creating apps is no longer as difficult as it once was, although it is certainly requires very specific skills.

This can also be said for creating a game. However, with a great idea, a little hard work, and some patience, you can create something that can bring in a tremendous amount of revenue.

#5. Start investing

There are tons of opportunities out there, in terms of learning how to invest. Even better, you don’t have to sink a ton of money into this.A little research can be combined with a little extra money quite easily. You are going to find yourself in complete control of how much time and money you put towards this endeavor. 


[ Investing in gold and silver is always a great option and you should really consider it for your retirement if you live in the United States. Read this 100% free Gold IRA guide now for more information.]

#6. Consider peer-to-peer lending

Despite the element of risk, there is no question that peer-to-peer lending is still one of the best possibilities for learning how to make passive income. Essentially, what you will do is lend one or more people some money. You will then collect passive income from the interest.

You can cut down on the risk (someone defaulting) significantly by loaning very small amounts of money to several people at time. If everything goes well, you shouldn’t have to put in much effort at all, if any at all.

A few more passive income ideas to try:

About Timothy Olson


Welcome to my blog! My name is Timothy Olson. I have been working online since 2003 and I currently earn a full-time living from home teaching about proven ways to make passive income online (and offline). Earning passive income online takes a lot of hard work and determination. There is a learning curve, you will need to invest some money into your business. It will take some time to see results of your hard work, but it is worth it!