Which of the following best defines nonpassive income?

Nonpassive income is best defined as income derived from active business engagements. This type of income typically comes from activities in which the individual is actively involved, such as working a job where they provide services or manage a business in which they participate extensively.

Active participation distinguishes nonpassive income from passive income, which is generated from sources where individuals do not materially participate, such as rental income from property management or earnings from investments where they have little to no involvement. Understanding this distinction is crucial for tax purposes, as nonpassive income is generally subject to different tax treatment compared to passive income.

It's important to note that income considered nonpassive does not stem from investments where there is a lack of participation in operational activities, nor does it involve income that is non-taxable. Both of these situations relate to passive income or non-taxable scenarios, but they do not fit the description of nonpassive income defined by active engagement in business operations. This clarity helps individuals and tax professionals accurately categorize income streams for proper tax reporting and liability determination.