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You may think of your income as being your paycheck or your freelance earnings, but there are actually many different types of income. If you have stocks that are generating dividends, that’s income, as is interest you earn on any savings accounts. Do you own a rental property that has rent payments flowing your way? That’s income, too.

Here, you’ll learn about seven common types of income and how they may affect your financial life.

What Is Income?

Simply put, income is money that a person or business earns in return for labor, providing a product or service, or returns on investments. Individuals also often receive income from a pension, a government benefit, or a gift. Most income is taxable, but some is exempt from federal or state taxes.

Another way to think about income types is whether it is active (or earned) or passive (or unearned).

•  Active or earned income is just what it sounds like: money that you work for, whether you are providing goods or a service.

•  Passive or unearned income is money you receive even though you are not actively doing anything to get it. For instance, if you have a high-yield savings account that earns you interest, that is passive income. Government benefits, capital gains, rental income, royalties, and more are also considered passive income. (We’ll go through these variations in more detail in a minute.)

People who are paid a salary may tend to think that their annual paycheck earnings are their income, but in truth, it’s common for people to have multiple income streams. Granted, your salary may be by far the largest stream of income, but when considering your overall financial picture, don’t forget to think about the other ways that money comes to you.

Different Types of Income

Here’s a look at seven common types of income.

1. Earned Income

Earned income is the money you earn for work you do, either in a job or self-employed. Earned income includes wages, salaries, tips, and bonuses.

Earnings are taxed at varying rates by the federal and state governments. Taxes may be withheld by your employer. Self-employed workers often pay quarterly and annual taxes directly to the government. Lower-income workers may be eligible for the earned income tax credit.

2. Business Income

Business income is a term often used in tax reporting; you may sometimes also hear it referred to as profit income. It basically means income received for any products or services your business provides. It is usually considered ordinary income for tax purposes.

Expenses and losses associated with the business can be used to offset business income. Business income can be taxed under different rules, depending on what type of business structure is used, such as sole proprietorship, partnership, corporation, etc.

3. Interest Income

When you put money into various types of interest-bearing financial vehicles, the return is considered interest income. Retirees often rely on interest income to help fund their retirement. You can earn interest from a variety of sources including:

•  Certificates of deposit (CDs)

•  Government bonds

•  Treasury bonds and notes

•  Treasury bills (T-bills)

•  Corporate bonds

•  Interest-bearing checking accounts

•  Savings accounts

Interest income is typically taxed as ordinary income, though some types of interest are tax-exempt.

4. Dividend Income

Some companies pay stockholders dividends as a way of sharing profits. These are usually regular cash payments that investors can take as income or reinvest in the stock. Dividends from stocks held in a taxable brokerage account are considered taxable income. These funds may be taxed at your regular income-tax rate or at a lower long-term capital gains rate, depending on whether they are classified as “ordinary” or “qualified”.

5. Rental Income

Just as it sounds, rental income is income earned from rental payments on property you own. This could be as straightforward as renting a room in your house or as complicated as owning a multi-unit building with several tenants.

Rental income can provide a steady stream of passive vs. active income. It may enhance your livelihood or even be your main income. When your rental property increases in value, you may also gain from that appreciation and increase in equity. In addition, rental income qualifies for several tax advantages, including taking depreciation and some expense write-offs.

But there are downsides. Owning a rental property isn’t for the faint of heart. Unreliable tenants, decreasing property values, the cost of maintaining and repairing properties, as well as fees for rental property managers can all take a bite out of your rental income stream.

6. Capital Gains

Another important income stream can come from capital gains. You incur a capital gain when you sell an asset for more than what you originally paid for it. For the purposes of capital gains, an asset usually means an investment security such as a stock or bond. But it can also encompass possessions such as real estate, vehicles, or boats. You calculate a capital gain by subtracting the price you paid from the sale price.

There are two types of capital gains — short-term and long-term.

•  Short-term capital gains are realized on assets you’ve held for one year or less.

•  Long-term capital gains are earned on assets held for more than a year.

The tax consequences are different for each type of capital gain. Short-term gains are taxed as ordinary income, while long-term capital gains may be taxed at a lower rate.

Keep in mind, however, that capital losses can happen too. That’s when a capital asset is sold for less than its original purchase price. While it’s never pleasant to experience losses, there can be a small silver lining in this case. You may be able to claim a capital loss deduction from your annual capital gains.

7. Royalty Income

Royalty income comes from an agreement allowing someone to use your property. These payments can come from the use of patents, copyrighted work, franchises, and more.

Some examples: Inventors who license their creations to a third party may receive royalties on the revenue their inventions generate. Celebrities often allow their name to be used to promote a product for royalty payments. Oil and gas companies may pay landowners royalties to extract natural resources from their property. Musicians may earn royalties from music streaming services.

Royalty payments are often a percentage of the revenues earned from the other party using the property. Many things impact how much royalty is paid, including exclusivity, the competition, and market demand. How royalty payments are taxed can also vary, depending on the type of agreement.

Recommended: 10 Personal Finance Basics

The Takeaway

Understanding the seven general income streams (such as earned, dividend, and rental income) can help you make the most of your financial planning. Earning income from any of these sources can provide stability and help you achieve long-term goals, such as saving for retirement. Because some types of income have unique tax implications, it can be important to check with your tax advisor about any tax consequences that may exist.

Aside from earned income, interest is a type of income many people receive. And seeking out the best possible interest rate can be a solid way to enhance your earnings; looking for a high-yield bank account may be a good place to start.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What are the seven common types of income?

The seven common types of income are: earned income (money earned for work); business income (money received for products or services sold); interest income (returns from interest-bearing financial accounts); dividend income (payments from companies to stockholders as a share of profits); rental income (income earned from rental payments on property owned); capital gains (profit incurred when selling an asset for more than its purchase price); and royalty income (payments from licensing property like patents or copyrighted work).

What are the three main types of income?

The three main types of income include: active income (earned from performing a service like a job), passive income (generated from ventures like rental properties where you are not actively involved) and portfolio income (derived from investments such as stocks and bonds). These categories are distinguished by how the money is generated and how the income is taxed.

What are the four main income categories?

From a personal finance perspective, the four main income categories are: active income (money earned directly from a job or services rendered), passive income (recurring income from ventures in which you are not actively involved), portfolio income (earnings from investments like stocks, bonds, and mutual funds), and government income assistance (financial aid from the government for those who qualify).

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Pink sheet stocks are stocks that trade through the over-the-counter (OTC) market rather than through a major stock exchange. The term “pink sheets” comes from the paper that stock quotes used to be printed on, though today, stock quotes and stock trading takes place electronically.

The over-the-counter market may appeal to smaller companies and companies that don’t meet the listing requirements of the major stock exchanges. A pink sheet stock does not face the same level of regulation as stocks from publicly traded companies that are traded on the New York Stock Exchange or NASDAQ and many pink sheet stocks tend to be volatile and high risk.

What Is a Pink Sheet OTC?

Pink sheet stocks are those that trade over the counter (OTC), rather than via stock exchanges. OTC Markets Group provides quotes for pink sheet stocks, and broker-dealers execute trades directly with each other.

Pink sheet OTC stock trading happens on an open market that does not have the same level of financial reporting rules as mandated by trading on the NYSE, NASDAQ or another stock exchange. It’s not illegal, though the Securities and Exchange Commission (SEC) warns investors to stay vigilant for potential scams or fraudulent trading involving the pink sheets market and microcap or penny stocks.

A company may choose to sell shares on the over-the-counter market if it can not meet the listing requirements established by the SEC, or does not want the expense of going through the IPO process. Many pink sheet stocks are penny stocks.

Pink sheet stocks can be highly volatile and risky so it’s important for investors to understand both the risks and potential rewards.

Listing Requirements

In order for a company to get listed on OTC pink sheets, they must file Form 211 with the Financial Industry Regulatory Authority (FINRA). Companies typically do this through a sponsoring market maker, or registered broker dealer firm. The sponsoring market maker accepts the risk of holding a certain number of shares in a pink sheet company to facilitate trading of those shares.

The Form 211 asks for financial information about the listed company. The broker dealer can then use this information to generate a stock price quote. Pink sheet over-the-counter stocks do not need to adhere to the same financial reporting requirements as stocks that trade on major exchanges.

Are Pink Sheets and OTC the Same?

The terms pink sheet stocks, and OTC or over the counter, are not the same thing, though they both refer to trades that take place outside of the traditional stock exchanges. The company OTC Markets provides quotes for companies listed on the pink sheets, as well as the OTCQX and the OTCQB trading marketplaces.

The OTCQX allows for trading of companies that are not listed on traditional exchanges but still subject to SEC rules. The OTCQB includes emerging companies with a stock price of at least a penny that are not in bankruptcy, have a minimum of 50 beneficial shareholders who each own 100 shares, and annually confirm that information is up to date.

Pink sheet stocks listed on the OTC marketplace have fewer financial reporting requirements than the OTCQX and OTCQB. In mid-2025, the OTC Markets Group took the step of splitting its Pink Current Market into two, more specific groups, called the OTCID Basic Market and the Pink Limited Market.

Companies listed on the OTCID Market provide certain baseline information, such as financial disclosures, management certification, and a company profile. Companies listed on Pink Limited, however, have limited information available and do not certify compliance with established reporting standards. OTC Markets lists these companies with a yield sign to alert investors to proceed with caution.

Are Pink Sheets and Stocks the Same?

Pink sheet stocks are stocks, meaning each one represents an ownership share in a company. A primary difference between pink sheet stocks and other types of stocks, such as blue chip stocks, is how investors trade them. Investors trade pink sheet stocks over the counter, and other types of stocks on an exchange.

Pink sheet stocks may have much lower valuations than small-cap, mid-cap or large-cap stocks, or they may be newer companies that have yet to establish themselves in the market.

Companies that Use Pink Sheets

There are quite a few companies that use pink sheet stocks, and that includes some big-name, well-known companies that most people would recognize. That said, most companies that use pink sheets likely wouldn’t be recognizable immediately to the average investor.

Pros and Cons of Pink Sheet Stocks

Pink sheet stocks have benefits and disadvantages, both for the companies that list over the counter and for investors. Here are some of the most important pros and cons.

Benefits of Pink Sheet Stocks

From a business perspective, being listed on the pink sheets can save companies resources. Rather than going through the IPO process to become a publicly-traded company, pink sheet stocks circumvent the major stock exchanges and their listing requirements.

Foreign companies may choose the pink sheets to avoid SEC financial reporting rules. Additionally, companies delisted from a stock exchange may seek to trade on the pink sheets OTC market.

For some investors, the possible appeal of pink sheet stock trading may be the potential to pick up stocks at very low prices. Because there are fewer reporting requirements, it may be possible to find a much broader range of stocks to invest in when trading on the OTC pink sheets. However, there are significant risks involved — see the information below.

Disadvantages of Pink Sheet Stocks

Trading on the pink sheets OTC can call a company’s reputation or credibility into question. Investors may wonder why a company is not seeking an IPO to get listed on a stock exchange or why a company has been delisted. That can make it difficult for a company to cement its footing in the marketplace and attract attention from new investors.

Investing in pink sheet stocks involves substantially more risk than trading stocks on a major exchange, since there is less transparency around them and may be limited financial information. That means investors are generally taking on more risk when investing in pink sheets because they may not know what they’re buying. In addition, pink sheet stocks can be highly volatile, and tend to have lower liquidity, meaning it can be more difficult to buy or sell shares.

Pink Sheet Stock Investment Risks

Part of investing means paying careful attention to risk management. Pink sheet stocks can present a much greater risk in a portfolio for several reasons. A major issue with pink sheet stocks is that they can be susceptible to price manipulation or fraud.

Individuals might use shell companies, for example, to trade on the pink sheets for the purpose of laundering money or otherwise defrauding investors. Because there’s so little regulation and transparency surrounding these stocks, it can be difficult to tell if a company is legitimate.

Also, there’s less liquidity surrounding these stocks due to lower trading volume. That could make it harder to sell shares of a penny stock or pink sheet stock.

The pink sheets market and over-the-counter trading in general can be more susceptible to stock volatility. Rapid price fluctuations could generate higher-than- anticipated losses if the price of a pink sheet stock nosedives unexpectedly.

And share dilution can also reduce the value of penny stocks or other pink sheet stocks. Dilution occurs when a company issues more shares of stock, watering down the value of the existing shares on the market.

Where to Find Pink Sheet Stocks

Pink sheet stocks may be offered through certain brokerages and can also be found through the OTC Markets Group. The platform has a stock screener to filter for Pink Limited stocks, as well as OTCID stocks. The filter provides the stock’s ticker symbol, its country of origin, price, and trading volume, among other information.

Investing in Pink Sheet Stocks

Those interested in investing in pink sheet stocks need a brokerage account and, specifically, a broker that offers pink sheet trading. Not all brokers offer this service so you may need to look into different options for where to trade pink sheet stocks online.

Given the high degree of risk involved, it’s important to thoroughly research the background, executives, and financials of a company you’re considering investing in. It’s equally crucial to consider how much you could realistically afford to lose if a pink sheet stock or penny stock gamble doesn’t pay off.

Keep in mind that commissions may apply, and brokerages may charge higher trading fees for pink sheet stocks versus stocks that trade on a major exchange, so it’s important to factor cost in when estimating your risk/reward potential.

The Takeaway

Pink sheet stocks, or OTC stocks, are stocks that do not trade on traditional large exchanges, and instead, trade “over the counter.” Companies that trade stocks on the over-the-counter market may include smaller companies, some foreign companies, and companies that don’t meet the listing requirements of the major exchanges.

Pink sheet stocks are risky and highly volatile since there is less regulation and oversight of them, a lack of transparency and financial information, and the potential for fraud and price manipulation. For investors, it’s very important to be aware of the risks involved.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Take a step toward reaching your financial goals with SoFi Invest.

FAQ

Why do companies use pink sheets?

Companies may choose to use pink sheets or list their stocks on the over-the-counter (OTC) market for a number of reasons, including if they can’t meet listing requirements set forth by the SEC, or if they don’t want to go through the IPO process. Pink sheet stocks have less regulation and transparency, and they can be very risky and highly volatile.

Why is it called pink sheets?

“Pink sheets” refers to the paper that stock quotes were once printed on, which was pink in color. The term is still in use today even though stock quotes are now done electronically.

What are the risks of pink sheet investing?

Pink sheet investing can be very risky. Risks include potential fraudulent activity, less regulatory oversight, lack of transparency, low liquidity, and high volatility.

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