7+ Forms of Income You Need to Know

Your income is one of the most critical aspects of Personal Finance. Income is the fuel that creates the movement to propel you on your journey to being Financially Grounded. Income, or the lack thereof, tremendously affects what you can and cannot achieve at any given moment in finance.

Can I afford to go on vacation this year? Do I have enough money to go to dinner rather than cook tonight? Do I have the means to replace something that has broken?

These are the questions you ask yourself that consider income. If the answer is “No,” you must wait to save up for them, or you may put them on credit.

There are many forms that income can take. Look at the following to determine which you have. You may be surprised that you have multiple income streams available to you that you may not have been aware of.

Earned Income

All of the wages, salaries, bonuses, and tips you receive for performing services as an employee of an employer are Earned income. Most of us accept (or have) this type of income as it is the most common type of income, and it is gained through contract work or W-2 work.

Business Income

The income you receive from selling products or services is considered Business Income. Note that if your business is a real estate business, your rental income is business income.

Interest Income

This income is earned from bank accounts, money market accounts, certificates of deposit, corporate bonds, and insurance dividends. It is paid based on percentage rate yields for a certain period (e.g., monthly or annually). Interest income may be taxable, so please see IRS Topic No. 403 for additional information.

Capital Gains

Almost anything you own for personal or investment purposes is a capital asset. When you sell a capital asset, the difference between the amount initially paid and the amount the asset was sold for is a capital gain if there is a profit. Capital gains are typically taxed at a lower rate than earned income.

Dividends

Dividends are distributions from a corporation in which you own stock. Dividends are paid in cash, which can either be paid directly to you or used (sometimes) to purchase additional shares, known as dividend reinvestment.

Pensions and Annuities

Pensions and Annuities are retirement benefits that you may receive from a qualified employer retirement plan. All or some portion of the money you receive may be taxable; please see IRS Topic No. 410 for additional information.

Rental Income

Rental income is the fair market value you receive for another’s use of real estate that you own, which is rental income. Rental income includes not only the rent paid monthly but any money received from security deposits that are not returned, expenses paid by a tenant, advance rent, and amounts paid to cancel a lease.

Other Income

Other forms of income you may receive include child support, combat pay, court awards for damages, disability benefits, garage sale proceeds, gambling income, gifts received, and instance received.

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As you can see, many different forms of income can be used in your journey to Financial Grounding. You are likely receiving one, if not more, of these other forms of income.