Things You Can Buy That Will Make You Money

The concept of wealth accumulation often begins with understanding the distinction between consumer goods and assets. Consumer goods typically depreciate quickly, losing value over time and representing an expense. In contrast, assets are items or resources acquired with the expectation that they will provide future economic benefits, such as generating income or appreciating in value. These assets offer a pathway to building financial stability and increasing net worth.

The acquisition of income-generating assets involves a fundamental shift from spending to investing. Instead of purchasing items that fulfill immediate desires and then diminish in worth, individuals can acquire things that have the capacity to produce additional resources. This approach focuses on creating ongoing revenue streams or capital growth, which can contribute to long-term financial objectives. Understanding how different types of assets can generate money is a foundational step for individuals seeking to enhance their financial position.

Income-Generating Real Estate

Real estate stands as a tangible asset with a long-standing history of generating wealth. The primary methods through which real estate can produce income are rental revenue and potential property appreciation. Rental income is derived from leasing out properties, which can range from residential homes to commercial spaces. This consistent cash flow helps cover property expenses and provides a return on investment. Real estate assets can also increase in market value over time, influenced by factors like location, local economic growth, and development.

While direct property ownership involves management responsibilities, real estate investment trusts (REITs) offer an alternative. REITs are companies that own, operate, or finance income-producing real estate, enabling individuals to invest in large-scale property portfolios without direct management. REITs are legally required to distribute at least 90% of their taxable income to shareholders annually as dividends. These dividends are a source of regular income for investors. For tax purposes, REIT dividends can be categorized as ordinary income, capital gains, or return of capital. Some distributions may be classified as a return of capital, which reduces an investor’s cost basis in the shares and defers taxation until the shares are sold. A portion of ordinary REIT dividends may also qualify for the Qualified Business Income (QBI) deduction.

Direct rental income from properties is generally treated as ordinary income by the Internal Revenue Service (IRS) and must be reported on federal tax returns. This includes regular rent payments, advance rent, and payments for lease cancellations. Property owners can deduct various ordinary and necessary expenses, such as mortgage interest, property taxes, operating expenses, and depreciation. These deductions can significantly reduce taxable rental income. Rental income and expenses are typically reported on Schedule E, Supplemental Income and Loss, which is then filed with Form 1040.

Investments in Publicly Traded Securities

Publicly traded securities offer diverse avenues for generating financial returns, primarily through capital appreciation and income distributions. Stocks represent ownership stakes in companies. Investors can profit from stocks through capital appreciation when the share price increases, and through dividends, which are portions of the company’s earnings distributed to shareholders. Dividends can be classified as either qualified or ordinary, with different tax implications. Qualified dividends generally receive preferential tax treatment, taxed at lower long-term capital gains rates, which can range from 0% to 20% depending on the investor’s income bracket. To qualify, the stock must be held for a specific period, typically more than 60 days during a 121-day window around the ex-dividend date. Ordinary dividends are taxed at an individual’s regular income tax rate, which can be as high as 37%. Capital gains from selling stocks are also taxed differently based on the holding period; gains on assets held for more than one year are long-term capital gains, taxed at lower rates, while those held for one year or less are short-term capital gains, taxed as ordinary income.

Bonds function as debt instruments where an investor loans money to an issuer, such as a corporation or government entity. In return, the bondholder receives periodic interest payments, known as coupon payments, throughout the bond’s life. These payments provide a predictable income stream, typically made semi-annually. Bond prices can also fluctuate in the secondary market, allowing for capital appreciation. Interest income from bonds is generally taxed as ordinary income.

Mutual funds and exchange-traded funds (ETFs) are investment vehicles that pool money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities. They generate returns through capital appreciation of underlying holdings and through distributions of income, such as dividends and interest, as well as capital gains realized from selling securities within the fund. Distributions from these funds are generally taxable to the investor, whether received as cash or reinvested. The tax treatment of these distributions often mirrors that of directly held stocks, with qualified dividends potentially taxed at lower capital gains rates if specific holding period requirements are met by the investor.

Acquiring or Developing Business Assets

A business itself can be considered a significant asset, capable of generating substantial income through its operations. Acquiring or developing a business involves purchasing an existing entity, investing in a franchise, or building a new venture. The primary mechanism for generating money from a business is through its profits, derived from the sale of goods or services. These profits represent the financial return on the investment in the business asset. Most small businesses in the United States operate as pass-through entities for tax purposes. This means the business itself does not pay federal income tax; instead, profits and losses pass directly to the owners’ individual tax returns, taxed at personal income tax rates. This structure avoids the “double taxation” that C corporations face, where profits are taxed at the corporate level and again when distributed to shareholders as dividends. Common pass-through structures include sole proprietorships, partnerships, limited liability companies (LLCs), and S corporations.

Owners of pass-through entities may be eligible for the Qualified Business Income (QBI) deduction, also known as Section 199A. This deduction allows eligible taxpayers to deduct up to 20% of their qualified business income. For 2025, to qualify for the full deduction, taxable income generally must be below certain thresholds, such as $197,300 for single filers or $394,600 for joint filers, with phase-out rules applying above these limits.

Beyond income tax, owners of sole proprietorships, partners in partnerships, and LLC members are typically subject to self-employment taxes. This tax covers Social Security and Medicare contributions, totaling 15.3% on net earnings from self-employment, paid by the individual as both the employer and employee portions. Businesses can also deduct ordinary and necessary business expenses, including the cost of goods sold, salaries, and rent, which reduces the net taxable income.

Creating and Monetizing Digital Assets

Digital assets represent a modern category of income-generating “things” that often involve an investment of time and effort rather than traditional capital. These assets exist in digital form and can be monetized through various online strategies. Examples include websites, which can generate revenue through advertising, affiliate marketing, or direct e-commerce sales. Digital products, such as e-books, online courses, or software applications, are another form of digital asset. Once created, these products can be sold repeatedly with minimal additional cost, leading to scalable income streams. Content creation through platforms like YouTube channels, podcasts, or blogs also constitutes digital asset development, monetized through advertising revenue, sponsorships, or premium content subscriptions.

The income generated from creating and monetizing digital assets is generally considered self-employment income. This income is typically reported on Schedule C, Profit or Loss from Business, when filing individual federal tax returns. As with traditional businesses, individuals engaged in these activities are subject to self-employment taxes.

Creators of digital assets can deduct ordinary and necessary business expenses incurred in their creation and maintenance. These deductions reduce the net income subject to both income tax and self-employment tax. The Qualified Business Income (QBI) deduction may also apply to income derived from these digital endeavors if eligibility requirements are met.