Which type of income is generally considered active rather than passive?

Which type of income is generally considered active rather than passive?

• A. Income from a sole proprietorship
• B. Rental income from short-term vacation rentals
• C. Income from dividends in an investment portfolio
• D. Commissions from sales in a partnership

Answer: (D)

The type of income that is generally considered active is commissions from sales in a partnership. Active income typically includes earnings from activities in which the taxpayer materially participates. In this case, commissions earned from sales imply direct involvement in the business, as the individual is actively engaged in selling products or services, which contributes to their income generation. On the other hand, income from a sole proprietorship could also be classified as active, but it depends on the individual's level of participation. Rental income from short-term vacation rentals may fall into a gray area, as it can be considered active if there is significant personal involvement in managing the property. However, rental income is often deemed passive unless substantial services are provided. Income from dividends in an investment portfolio is classified as passive income, as it does not require direct involvement in generating earnings. Thus, commissions from sales in a partnership are distinctly active as they result from direct participation in the business operations.

The type of income that is generally considered active is commissions from sales in a partnership. Active income typically includes earnings from activities in which the taxpayer materially participates. In this case, commissions earned from sales imply direct involvement in the business, as the individual is actively engaged in selling products or services, which contributes to their income generation.

On the other hand, income from a sole proprietorship could also be classified as active, but it depends on the individual's level of participation. Rental income from short-term vacation rentals may fall into a gray area, as it can be considered active if there is significant personal involvement in managing the property. However, rental income is often deemed passive unless substantial services are provided. Income from dividends in an investment portfolio is classified as passive income, as it does not require direct involvement in generating earnings. Thus, commissions from sales in a partnership are distinctly active as they result from direct participation in the business operations.