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Home> Income Tax Guide

residual income

Residual income is revenue that occurs over time from work done one time. Some examples include:
1. An life/auto/rent insurance agent who gets commission every year when a customer renews his policy
2. A marketing or direct sales rep's income from his direct customers when they reorder product each time
3. An aerobics instructor who produces a video and sells it at the gyms where she teaches or sells it online
4. A marketing consultant who creates a workbook and sells it in e-book pdf format on the Internet
5. A photographer who makes his photos available through a stock photography clearinghouse or online and gets paid a royalty whenever someone buys one of his images
6. A restaurant or retail owner who has grown to the point of hiring a trustworthy manager and doesn't need to manage daily operation

There are many different ways to generate residual income across a wide variety of businesses. It may be recurring income from the same customers, or the sales of a product to new customers. It may require no personal involvement whatsoever, such as an e-book sold on a web site, or it may require some personal interaction, such as the insurance agent calling the customer to remind them about their renewal and ask them if they want to change any of their coverage. However, most of these require not much work or little assistant.

This is different from merely recurring income. Recurring income may still require your involvement to earn the income, e.g., a coach or consultant on a monthly retainer, or a caterer who delivers lunch every Monday to the local school board. While this "active recurring income" offers welcome stability, it also tends to tie you down, and you still have limits on your earning capacity based on your own personal production capacity.