what is active income vs passive income 
active income is earned through producing or helping to produce a product or service passive income is received without any substantial effort active income and passive income are both taxable usually at the same rate however the difference is important when a taxpayer has losses in passive income in such cases the passive activity loss rules forbid taxpayers from using passive losses to reduce active or earned income 1the bottom linethe concept of passive income has been a hot topic recently given the proliferation of side gigs that the internet spawned passive income is income that is earned without material participation from the taxpayer this is different than income from investments which are considered capital gains or losses in general passive income is taxed the same way as active income however the difference becomes important when you experience passive income losses if you lose money you can t deduct your losses incurred in passive income from gains made through active income sources 