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Passive Income

Passive Income is an income received on a regular basis, with little effort required to maintain it. Earnings from rental properties, businesses that do not require direct involvement from the owner or merchant, Royalties or patents, earnings from internet advertisements, dividend and interest income from stocks and bonds, as well as pensions, would all fall into the category of passive income. Below some of the most commonly asked questions about Passive Income are answered by Experts.

When a person is a passive partner in a Limited Liability Company, which forms should be used to file passive income on their federal tax return?

In most cases, any income or loss, whether passive or not, would be reported on Schedule E, Page 2 of a federal tax return.

What would be the best way to get passive income to offset yearly losses from rental property?

Typically, other than acquiring another rental property that generates net income to offset the net losses from the other properties, a Passive Income Generator (PIG) investment through a brokerage firm could be a way to offset these losses.

Would a child with passive income need to file a separate tax return even though the interest and dividends were reported on their parents tax return? And if so should the parent submit an amended return for themselves?

Most generally a parent can report a child’s income only if it’s from interest, dividends, or capital gain dividends. So, if there are gross proceeds from the sale of investments, K-1 income other than interest and dividends, or wages, the child would need to file a separate return. Also the parent should, in the case of a separate return amend their return. As for the other child, as long as the child is under 24 years old who is a full time student, they will have to file a return if they earn wages. The parent can still claim the child as a dependent as long as the parents provide more than one-half of the child’s support.

If a person filing a 1040NR with current year passive income, if the passive income doesn’t give them a tax liability and they have prior year losses, would they have to net them together in order to lower the income, or are they allowed to carry over the loss until they decide to use it?

Typically if the individual has a prior year passive losses they would have to net it against the passive income, and would not have the option to carry it over without first offsetting it with the current year passive income.

Is passive income exempt in divorce distribution in the State of Mississippi?

Typically since Mississippi is an equitable distribution state, the court would decide what is distributed in accordance with marital property laws. But generally all income earned during a marriage is considered divisible.

  Some financial and government institutions also recognize passive income as an income obtained as a result of capital growth, or in relation to negative gearing. The Internal Revenue Service recognizes most passive income as taxable, and usually it should be claimed on a person’s tax return. However the IRS has a definition of passive income that can exclude some of the incomes listed above. The subject of passive income can open the door to many questions, and who better to provide insight to these questions than the Experts.

Ask a Tax Professional

Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: General
Satisfied Customers: 572
Experience:  10 years experience
16356563
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Tax Professionals are online & ready to help you now

Wallstreet Esq.
Tax Attorney
Satisfied Customers: 570
10 years experience
Wendy Reed
Enrolled Agent
Satisfied Customers: 3052
15+ years tax preparation and tax advice.
Mark D
Enrolled Agent
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MBA, EA, Specializing in Business and Individual Tax Returns and Issues

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