What type of income is classified as active income?

Active income refers to earnings generated from direct participation and efforts in a particular activity or business. This includes wages, salaries, bonuses, and other compensation received for performing services. When a taxpayer is engaged in work or provides services, the income earned is classified as active because the taxpayer is actively involved in generating that income through their efforts.

In contrast, income from investments typically falls under passive income, as it often doesn't require ongoing effort from the taxpayer after the initial investment. Similarly, rental income is generally considered passive unless the taxpayer significantly participates in the rental activity, such as managing the properties actively. Lastly, income received passively without participation clearly denotes a lack of involvement, which, by definition, excludes it from being considered active income.

Thus, the classification of income as active reflects the direct engagement of the taxpayer in activities contributing to their earnings, making it an essential distinction in understanding how different types of income are taxed.