Are you maximizing all the ways your business can profit? If you haven’t looked at passive income yet, it’s about time you do. Wouldn’t it be great to wake up in the morning and have dozens, hundreds or thousands of emails notifying you of sales while you were asleep? Making money while you sleep, walk the dog, run errands, etc. sounds like a great day to me.
So, what is passive income?
Passive income is something you set and basically forget. What do I mean? Well, you could offer a digital download on your website. You could have affiliate links on your website and get paid every time someone makes a purchase. Once you create the content, it exists in cyberspace for your ideal clients to purchase.
You can also secure passive income from rental property, minor involvement investments, etc.
According to the IRS, passive income is income derived from something you personally did not actively participate in. Let’s talk about investors for a minute. If you run a business and an investor puts up $100,000 and the agreement is that they make a percentage from sales, if that investor does not have a say in the business, it’s considered passive income for that investor. If the investor offers any sort of advice, helps manage the company, etc. it is now considered active income from the IRS. My aunt is notorious for this type of income. She is basically her own Shark Tank and invests in countless businesses and real estate but does not actively participate in any. She fronts the money and watches the cash roll in.
The IRS has a test to determine if income is passive or not. It’s super simple. “If you’ve dedicated 500+ hours to a business or an activity from which you’re profiting from, that is material participation; if your participation in an activity was ‘substantially all’ the participation for the tax year, that is material participation; if you’ve participated up to 100 hours and that is at least as much as any other person involved in the activity, then that is defined as material participation.” So, while the e-book on your site is not by the IRS’ standards for passive income, it is passive in the sense that you can set it and forget it.
Ask yourself, “am I making money while I’m sleeping?” If the answer is no, it’s time to add some passive income to your business.