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What are Earning Assets?

Mary McMahon
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Updated: May 16, 2024
Views: 14,270
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Earning assets are assets that generate income for the people or companies that hold them. In other words, in addition to holding inherent value, these assets also earn money for their owners. Such assets can be part of an investment plan designed to provide a steady supply of income that can be relied upon for financing activities such as retirement. There are a number of different types of earning assets and there are several different ways of viewing such assets for accounting purposes.

One definition of earning assets includes any assets that generate income without requiring additional work or investment on the part of the owner. This includes things like interest bearing accounts, securities such as stocks and bonds, and anything that pays dividends. After the initial outlay is over, the asset will begin to return funds immediately, providing a steady and secured source of income. People can opt to sell or transfer the assets, making a lump sum of income, and some types of earning assets may be subject to changing market conditions that can cause their value to rise and fall.

Other definitions also include assets such as real estate that can earn money, but also require some expenditures. Real estate requires work in the form of maintenance, although that work may be contracted out to another party. It also requires additional investment to pay for maintenance, improvement, insurance, taxes, and other expenses. These earning assets generate funds for their owners, but some effort is required to get and maintain returns. These assets are also treated as investments for their holders.

Any income earned with earning assets must be reported in tax filings. Typically, statements are sent by institutions like banks and companies that offer stocks to alert people to how much has been paid out over the course of a year so that people can file taxes accurately. For income from renting real estate and equipment, people must maintain accurate records and ensure that their declared income is accurate.

There may be some special accounting categories for certain types of earning assets. Classifying these assets differently can allow people to take advantage of deductions and other tax benefits they may find helpful. An accountant can provide more complete information on specific instances and can offer assistance with filing tax paperwork. It is important to ensure that tax paperwork is as full and complete as possible to avoid the need to refile and reduce the risk of attracting the attention of auditors.

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Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By Moldova — On Aug 09, 2011

@Bhutan - I have to respectfully disagree that real estate is a good investment for earning income because most real estate has added expenditures.

If you own a home you have to have pay property taxes along with homeowner’s insurance. If you live in a condo you have to pay maintenance fees and if you live on the beach these fees can be really high because a portion of the maintenance fees is tied to insurance premiums. These properties have a higher risk for hurricanes so that is why the maintenance is higher as well.

Also renting to others is not always easy because sometimes renters can destroy your home leading you to spend even more money to fix your home up or they may not pay your rent in a timely manner. I think I would rather stick with dividend paying mutual funds and stocks. They are less of a headache and I don’t have to worry about renters.

By Bhutan — On Aug 09, 2011

@Sunshine31 - I really prefer real estate because not only does real estate go up in value over time, but you can also earn income from it in the form of rent.

You can also enjoy living in it especially if the property is located in a resort area. I own a beachfront condo that I rent for the winter months and it pays for almost all of my expenses and the remaining nine months my family gets to enjoy it.

I could rent it for more, but my family enjoys it too much to do that. I also think that buying a beachfront property allows for the highest real estate gains because waterfront property is in very limited supply so the value will always trend higher than in inland areas.

By sunshine31 — On Aug 09, 2011

I wanted to add that municipal bonds are earning assets but do not have any tax implications because the earnings are strictly tax free.

Some people in very high tax brackets usually look at these types of investments because they do not have to pay any taxes on earned income. A friend of mine has municipal bonds and she told that she gets two yearly interest payment checks that she does not have to pay taxes on.

She said that she uses municipal bonds as part of her retirement planning strategy because it produces additional passive income.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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