Income Creation 101: How to Accumulate Wealth - Jerry Robinson

http://ftmdaily.com/ftm-radio-show/income-creation-101-how-to-accumulate-wealth/

On this week's show, Jerry Robinson shares the secret to wealth creation.

There is really only one way to truly get ahead (unless you marry a wealthy person or inherit a fortune from Grandma). But first, Jerry reflects on July 4th and provides you with a wrap of the most important news headlines of the week, including the chaos in Egypt and the latest on the NSA spying scandal.

Income Creation 101: How to Accumulate Wealth
In order to know how to accumulate wealth, you must understand what wealth is. Jerry teaches you the three types of income recognized by the IRS (along with their tax advantages), and then he discusses two other types of income that are the secret to building wealth. Then, Jerry describes the process of using different income streams to accumulate wealth in today's economy.

The Three Types of IRS Income
The IRS recognizes three types of income for taxation purposes: active (earned) income, portfolio income, and passive income. It is vital to understand each and determine the role they will play in your wealth accumulation strategy.

1. Active (Earned) Income. Also known as linear income. Compensation earned from your labor, employment, or material involvement in a business. It includes: Small business income, salaries (W-2 income), commissioned sales income, tips, and consulting income. Active income is the highest taxed form of income.

2. Portfolio Income. Portfolio income is composed of capital gains, royalties earned from books or patents, interest, and dividend income. This type of income is not created through normal business activity. Portfolio income is often taxed at a lower rate than active income, depending on how long you hold the investment prior to selling it.

3. Passive Income. Passive income is derived from business investments, such as a rental property or limited partnerships, in which you are not actively involved. Examples include net rental income (real estate or equipment) or business income from a business in which you do not materially participate. Basically, passive income is not "earned" by your time and effort. Passive income is usually taxed at the lowest rates and offers the highest number of potential tax deductions.

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