Types of income

The IRS defines three types of income that are typically seen.

The first and most familiar for most of us is earned income. Unfortunately, this is also the most highly taxed type of income, usually being taxed at or above 50%.

The second type of income is portfolio income. This income is produced by paper assets such as stocks, bonds or more rarely by patents held. This income is typically taxed between 15 and 20%.

The third type of income is passive income. This is the income produced by real estate assets. This is where the real tax deductions exist. This type of income may be taxed as low as 0%. That's right, you can make money in this way and pay absololutely no taxes. Now it doesn't always work out to 0% taxes, but this is without question the least taxed type of income you can earn.

So which type of income are you getting? Remember, its not how much you make, its how much you keep that matters.