Income earned from paper assets, such as stocks and bonds, is known as?

• A. Active income
• B. Passive income
• C. Portfolio income
• D. Earned income

Answer: (C)

Income earned from paper assets like stocks and bonds is classified as portfolio income. This type of income derives specifically from investments, including dividends from stocks and interest from bonds. Unlike earned or active income, which comes from providing services or labor, portfolio income is generated through the holding of financial assets.

This classification is important for tax purposes, as portfolio income is treated differently than active income from employment or business activities. It typically includes capital gains realized upon the sale of these assets, as well as any cash flow generated from them while they are held. Understanding this distinction helps in assessing one's financial situation and planning investments effectively.