Elisha is a photographer and charges a set fee to photograph weddings. This is an example of _____ income. A. Capital gains B. Earned C. Hourly D. Passive
Answer: B. Earned
What is Capital Gains Income?
The name ‘capital’ comes from assets you own. When you sell any asset you own for more than you paid for its acquisition, you have made profits. The profit realized from the sale of any asset is the capital gains income. For Elisha, gains are realized from the photography services. Since Elisha is not selling the camera he uses to to take photos, this is not an example of capital gains income.
What is Earned Income?
Earned income is the monetary compensation one receives due to their service in certain tasks. Earned income could be salary, wages, tips, and bonuses, among others. Elisha offers photography services. His wedding clients compensate for his time and photography services by paying an applicable set of fees. It explains why this compensation is identifiable as earned income.
What is Hourly Income?
Some jobs do not have hourly targets. An employee or worker is paid per hour regardless of the amount of work done. Elisha’s photography job is different. He charges for his services not on the basis of hours; thus, this income from photography is not hourly.
What is Passive Income?
You earn passive income from minimal or no labour towards certain property or investment. Elisha has to show up and offer wedding photography services. His photography business earns him active income rather than passive.