What are the differences between earned income and capital income?

The difference between earned and capital income is largely based on where the money comes from. The earned income usually refers to the money that the individual has received a specific work such as an hourly wage or a salary from work. Capital income is usually defined as the money produced by an investment of existing wealth. Some common types of capital income include shares dividend, investment revenues and any throughput income that the individual receives from the company he owns. These differences are often carried out for tax purposes, as earned income can be treated differently from undeserved sources.

Revenue earned is money that can be associated with performing specific work or actions and then compensate for it. An hourly wage or salary from employment is considered to be earned income, but tips and other sources of money can also be obtained. There are also some exceptions depending on the specific jurisdiction. For example, in the United States of Alimona you can tellto live for a form of earned income. In this case, it does capital or wealth. Interest obtained in a savings account or deposit (CD) can be considered a capital income, because the money owner did not work to realize that profit.

Another type of capital income can be handed over to an individual from the company he owns. In the case of corporation with or certain limited liability companies (LLCS), income from enterprises to owners are transferred. This type of income is usually considered passive as opposed to the earned income that the owner would receive if he worked for the company and had a regular salary. Capital gains are another type of undeserved incoje, which may result from the sale of valued real estate, financial instruments and other items.

One of the reasons why the earned and undeserved income often differentiates is for tax purposes. These different types of income are often taxed by differentrates, which may result in encouragement or discourage capital investment depending on the specific rate structure. In the United States, you may also not be able to contribute to certain tax postponed plans, such as individual pension accounts (IRA), in years that you do not have earned income.