7 TYPES OF INCOME | How Millionaires Earn | Taxes in the Philippines

Summary

In this video, Charm from Ready to the Philippines discusses the importance of having multiple income sources for financial security. She outlines seven types of income: earned, profit, interest, dividend, rental, royalty, and capital gains. Each type is explained in terms of its active or passive nature and tax implications. Charm emphasizes diversifying income to safeguard against job loss or market instability. She encourages viewers to reflect on their current income sources and strive for variety to enhance their financial resilience.

Takeaways

• 😀 Having multiple sources of income is essential for financial security.
• 😀 There are seven main types of income: earned, profit, interest, dividend, rental, royalty, and capital gains.
• 😀 Earned income is the most common and involves exchanging time for money.
• 😀 Profit income can be active or passive and is generated from selling goods or services.
• 😀 Interest income is a passive income earned from lending money or deposits, typically with low rates.
• 😀 Dividend income is derived from investments in stocks or bonds, providing a share of company profits.
• 😀 Rental income can come from real estate or personal property and can be active or passive.
• 😀 Royalty income comes from intellectual property rights and can generate ongoing payments.
• 😀 Capital gains are realized when an asset is sold for more than its purchase price, with varying tax rates.
• 😀 Diversifying income sources helps mitigate risks associated with job loss or business downturns.

Q & A

What are the two main categories of income discussed in the video?

The two main categories are active income, which requires continuous work to earn, and passive income, which can generate earnings with little to no ongoing effort.

What is earned income, and how is it typically taxed in the Philippines?

Earned income is the most common type, consisting of salaries, wages, and bonuses. In the Philippines, it is taxed between 20% to 35% for individuals earning over 250,000 pesos annually.

Can profit income be both active and passive? How?

Yes, profit income can be both active, if the individual is directly involved in the business, or passive, if the business operates independently and generates profits without the owner's direct involvement.

What is interest income and what are its typical tax rates?

Interest income is a passive form of income earned by lending money to banks or governments. It usually earns rates between 0.25% to 1% and is taxed at 15% to 20%.

How does dividend income work and what is its tax rate?

Dividend income is earned from investments in stocks or bonds, representing a share of a company's profits. It is generally taxed at 10%.

What types of properties can generate rental income?

Rental income can come from various sources, including residential, commercial, and industrial properties, as well as equipment and gadgets like cameras or cars.

What is royalty income and how is it taxed in the Philippines?

Royalty income is earned from intellectual property rights, such as books or music. In the Philippines, it is typically taxed between 10% to 20%.

What are capital gains and how are they taxed?

Capital gains are profits earned from selling an asset for more than its purchase price. In the Philippines, they are taxed at rates ranging from 0.6% to 15%, depending on the asset type.

Why is it important to have multiple sources of income?

Having multiple sources of income provides financial security, protecting against job loss, business failure, or poor investment performance.

What advice does Charm give regarding income diversification?

Charm advises viewers to diversify their income sources, not just within their investment portfolios, but also by pursuing different types of income to mitigate risks.