What type of income includes interest, dividends, annuities, and royalties?

Portfolio income refers to earnings derived from investments, such as interest, dividends, annuities, and royalties. This type of income typically comes from financial assets and is not directly related to the individual’s active participation in a business or service provision. For example, someone who earns interest from a savings account, receives dividends from stock ownership, or collects royalties from intellectual property is generating portfolio income. This distinction is important for tax purposes, as different types of income can be subject to varying tax rates and implications.

In contrast, active income is generated through the performance of services or business activities, while personal service income specifically pertains to income received from work performed personally, such as salaries and wages. Passive income, on the other hand, typically refers to income that is earned from rental properties, limited partnerships, or other enterprises in which the individual does not actively participate. Understanding these classifications helps taxpayers accurately report their income and comply with IRS regulations.