Is Passive Income Illegal

As we mentioned earlier, the word “passive” is typically associated with types of income that don't require you to do anything aside from maybe buying a product or two to promote them. And while it's true that most forms of passive income are quite easy to come by, it doesn't mean investing in them is okay!

There are some ways to make money passively that go against our basic moral principles- something all too common these days. In this article, we'll be talking about five such practices and why they're not only immoral, but illegal as well.

Don't worry though; we'll also talk about what to look out for if you feel like someone is trying to get you into one of these scams.

Multilevel marketing

Many people have their opinions about whether or not passive income is ethical, legal, or both. Some say that it is totally illegal because of how some companies use money to promote products.

Many people also claim that active income is more honest than passive income. An example of this would be someone making a ton of money selling something before going and buying the product themselves.

However, there are many ways to earn large profits without breaking the law. One of these strategies is called multilevel marketing (MLM).

What are MLMs?

A direct sales model where individuals sell a service or product through person-to-person advertising and recruiting is an MLM.

The term “level” refers to what level of employee you are (employee, consultant, independent contractor), while the “marketing�” part refers to the type of advertisement used to recruit new members.

Pyramid schemes

is passive income illegal

Another type of fraudulent business model is called a pyramid scheme. This is when there are initial “members” or “investors” who make huge profits because they receive a very high return on their investment.

The problem with this model is that not many people survive by going up the ladder in an organization where you gain power by recruiting more members. Power usually comes from making large investments, which most people can't afford to do unless they have money to invest.

So instead of investing in your company, you invest in yourself — educating yourself about the product and how to use it effectively.

This way you stay independent and don’t need to recruit others to remain successful. You earn by creating products users want and paying little for the ingredients.

Online auctions

is passive income illegal

A popular way to make money via passive income is through online auction sites. What most people don’t know about them, though, is that it's illegal to advertise for them in some countries.

There are several reasons why this is the case. One being that they're used to promote goods or services that are already available at no cost. Another being that many of these sites have you agree to be contacted by sellers who offer their products through an affiliate program.

That means they pay the site a commission if you purchase something from their link. But it also means they won't be contacting you to sell anything!

So how can you get paid for buying things? There are lots of ways, but some require more effort than others. You'll probably need to do some research and find what works for you.

Rent to own

is passive income illegal

As we have seen, owning a house is an expensive way to start your financial life. Many people begin with a low cost place to live and slowly add onto it as they earn more money.

Many of these individuals then rely on debt to finance their housing costs for many years before they achieve true wealth.

Furthermore, not all individuals who rent are conscious of the fees that they are paying in relation to their monthly income. These additional expenses may be hidden.

In this article, we will talk about one of the most common ways to invest in real estate – what’s called a “rent-to-own” strategy.

Rent to own - What is it?

A rent-to-own property or lease purchase deal comes down to two things:

You pay a small amount of cash up front to gain access to a home You make regular payments towards buying the home

The term ‘lease buy’ is sometimes used instead but this can mislead potential investors due to the use of the word ‘buy’.

It could also imply that you are purchasing the home rather than renting it, which is definitely not the case here!

Here's how it works! Let's say you're looking at a house that costs $500,000.00. So, you would need to come up with $50,000 in order to actually purchase the home.

House flipping

is passive income illegal

One of the most popular passive income strategies out there is house flipping. This is when you buy a home that is in poor condition and invest in it to make major renovations. Your profit comes from selling it as a better quality residence or buying a newer similar home.

House flipping was very popular back in the early 2000s before everyone and their neighbor had access to a camera phone with easy sharing options. Now, anyone can easily distribute pictures and videos online for free distribution, so this strategy has become much more limited.

There are several rules against house flipping that have been enacted by various municipalities and state governments. Some laws go as far as requiring you to be licensed as an investor!

Most notably, realtors must register properties you intend to sell which makes doing so difficult unless you are already working with them. Also, many landlords require tenants to give you permission to do any repairs in order to keep your costs down.

These restrictions are very annoying because they take away part of your potential revenue, but hopefully only for a few years until house investing becomes less intensive.

P2P loans

is passive income illegal

Many people have their opinions about how to make extra money- some legal, some not. One of the more controversial ways to make money is via p2p (person to person) lending. This is when you give your financial resources to someone else to use for a specific purpose – in this case, they can lend that resource to someone else to spend!

Many people advertise their services as being a “peer to peer lender”. What most don’t tell you is that these lenders are usually doing it illegally. It is totally possible to do ethical, lawful p2plending but there are limitations to what kind of loans you can offer and where you can accept payments.

Taxation in the US

is passive income illegal

The United States has two main types of taxation, direct (or active) taxation and indirect (or passive) taxation. With direct taxation, individuals are directly paid a tax bill by their government for what they earn or how much money they have. Examples of this include income taxes, estate taxes, and gift and inheritance tax.

Indirect taxation is when companies and institutions pay someone else to make products or provide services, and that person pays an appropriate tax on his or her earnings. This includes things such as entertainment fees, philanthropy, and business loans and investment returns.

Most Western countries use a combination of both direct and indirect taxation to finance their governments. Directly paying people for their work and giving them adequate resources to do their job is one of the most important ways that our country functions.

Passive income is typically defined as revenue that comes in automatically without you doing anything to promote it. For example, if you write a book, your book will sell itself and income from the book will be considered passive income.

However, there is some debate over whether or not investing in real assets like homes and businesses is counted as active income because you have to take certain steps to get these benefits. Many experts believe that investing is inherently active, but just maybe not actively working with professionals.

The argument against defining investments as active income is that too many high-income earners rely heavily on investing to fund their lifestyles.

Brokering deals

is passive income illegal

A lot of people get hung up on defining what is considered passive income. Some feel that investing in real estate or starting your own business are not legitimate ways to earn money because you have to put in effort to reap the benefits.

By this definition, anyone who owns a house and rents it out or someone who has a side hustle like doing freelance work would be leaving the workplace and creating their own job.

This isn’t necessarily a bad thing, but there are some laws that may apply to such strategies.

In this article we will talk about one of the most common types of passive income – broking houses.

What are they?

A brokerage house is an organization that gets paid by a seller to find buyers for her property. This can range from finding a simple apartment unit to buying a mansion.

Usually sellers look at brokers as more of a friend than a professional, which is why many sneak through loopholes when paying them.

It is very easy for sellers to forget to include the broker in the selling process. Sometimes they don’t want to pay the fee, so they ask the broker if he/she will do it all on his/her behalf. Or maybe they are too busy to deal with the sale themselves and just hire a broker. Either way, the broker makes money without putting in any effort beyond showing the property.

About The Author

Tiara Ogabang
Tiara Joan Ogabang is a talented content writer and marketing expert, currently working for the innovative company juice.ai. With a passion for writing and a keen eye for detail, Tiara has quickly become an integral part of the team, helping to drive engagement and build brand awareness through her creative and engaging content.
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