Passive income is income that can be earned automatically with minimal labor to earn or maintain.
I guess you can't really call that passive if you spend time working for it. It's not like an investment that you buy once and gives your income each month.
PS: Sadly writing can pay off as much as giving you nothing (money wise).
Yeah it's kind of tricky to classify this on the passive/working[2] income scale, and I'm not even sure it's a useful classification at that point. But here's how I'd think about it.
Imagine you work a legit, regular job. Obviously, that's not passive income. But say you get a deal[1] that, for every year where you defer receiving the salary from the employer, you get a 10% bonus (compounded like interest).
The correct way to look at that, IMHO, would be "The original salary is working income, the additional gains from deferral are passive income."
Then apply that to the case of these writing royalties. Which part is what? Well, he worked to write the book, but received income over several later years.
So then I'd break it into:
a) "the hypothetical amount he could have sold the IP to a publisher for when he finished it", which is rightly called working income.
b) any gain above that amount that he received via the royalty deal, which would be passive income.
(This is probably 100% unrelated to how the IRS would classify it.)
[1] which, for simplicity, we'll assume is trustworthy and above-board, even though an offer like this probably wouldn't be in practice.
[2] In common parlance, I think "working income" would be called "earned income" but I don't like that phrasing and so avoid it here.
As I pointed in a comment I've written, books income are actually automatically earned, since the author doesn't need to promote his books (Amazon's upvote system, e.g.). (however: it's an hypothesis for the moment because he didn't communicate about that).
Labor to write his book is low labor, since he writes books <=100 pages, he enjoys that, and it is far less stressing than working for someone (employer/customer). In fact it makes him feeling happy and, perhaps, relaxed. However, the author would be welcome to clearly indicate weither or not this required labor is actually "low one" or not, because he didn't communicate about that.
Maintaining his books: the author doesn't communicate about that but maintenance operations on books seem low labor too, far less than code maintenance.
Those books incomes, I see them as passive(writting a book once, over a period of several months probably, then eventually getting money each month is as worth as investments, except that investments are done in few seconds with some money needed to be brought - for books written: no money is needed to be brought, but it takes months contrary to few seconds to be done). Moreover, they can be extended by bank investments or Bitcoin investments, extending their "passive"-side.
> PS: Sadly writing can pay off as much as giving you nothing (money wise).
Exact. But the author writes no books > 100 pages and he has even written a sentence about this.
PS: if we define "labor" by "spent money", then writting and publishing a book (and ebook) is also low labor since very few $$$ are required to be bring by the author, like computer science projects.
> Note that: bank investment need lots of money to be done. Writting books, no. Bank investment need a few seconds to be done. Writting books, several months. I think they are equivalent and, thus, are both ways to earn passive incomes.
("equivalence" from a money point of view and almost from a labor point of view, if we consider that bank investments's initial brought money is only due to labor, not inheritance, etc.)
And if my grandmother had wheels she'd be a wagon. This is obfuscating a useful distinction - labour is stuff you do, spending money in the hope of a return is investment. It's like trying to redefine landlordism as labour because you do occasionally have to do some work.
> Moreover, they can be extended by bank investments or Bitcoin investments, extending their "passive"-side
???
The word everyone is looking for in regard to royalties is not passive or active but deferred income. Writing a book is labour, regardless of word games, and it produces a capital asset - intellectual property - that you can either sell all at once or over a period of time.
> the author doesn't need to promote his books
This is rarely true of books. It sounds like he's found an under-served niche. Once upon a time you didn't have to promote apps in the app store, either.
I was writting a long answer but finally, I decided to simply quote:
> In the court's view, royalties are those items which constitute passive income, such as the compensation paid by a licensee to a licensor for the use of a Page 7 patented invention.
This article is about books. Book royalties are generally considered self-employment income, not passive income, under the tax code.
> However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc., report your income and expenses on Schedule C (Form 1040).
I guess writing a book is "labor" but "royalties" out of it are passive income, I guess it's a mix of both. But Royalties cannot be achieved in that case without the Labor of writing the book
by this measure there may be no such thing as passive income, or at least very few instances of it in this world since just about everything requires you to do something to realize a profit from it. I guess having a rich relative you never knew die and leave you everything is passive, as long as you don't have to go to the will reading or anything.
PS: Sadly writing can pay off as much as giving you nothing (money wise).