Friday, September 19, 2008

US Taxation series -2



There are three main categories of income:

Active income :
Income for which services have been performed.
E.G. Wages, commissions and income from businesses.

Passive income :
Income from business activities in which a taxpayer does not materially participate.
E.G. Rental Real Estate

Portfolio Income:

Income from investments.
Dividends, interest ,royalties capital gains.

Earned Income –

Compensation for personal services rendered.
Wages, salary, Tips, Professional fess also includes Scholarships.

Unearned Income –

Basically investment type income.
Interest, Dividend , Capital gains, Pensions, Annuities

Wages mean employee compensation and it includes

fringe benefits.
retirement plan contributions.
stock options.

Wages are reported on Form W2, which is provided by the employer.