How many streams of income do you have?

[disneysteve]

In my mind, if dividends and CG are reinvested, then they do not count as income streams. (Asset growth? Yes.)

If I earn $100 from my job and use that to buy more shares of a mutual fund, how is that any different than if I earn $100 from my existing mutual fund and use it to buy more shares?

My job generates income.
My investments generate income.

Income is income. What I choose to do with that income doesn't matter.

[Fishindude77]

In my mind, if dividends and CG are reinvested, then they do not count as income streams. (Asset growth? Yes.)

Thus, my only income stream is W-2.

I agree.

[disneysteve]

I agree.

So does it only count as income if you spend it right away?

As I said earlier, our investments generated $43,500 in INCOME in 2020. We had to report it as income on taxes (at least the portion that came from taxable accounts). We had to pay income tax on that money. I'm not sure how anyone can say it doesn't count as income. What we chose to do with that income doesn't change the fact that it was income.

[Nutria]

If I earn $100 from my job and use that to buy more shares of a mutual fund, how is that any different than if I earn $100 from my existing mutual fund and use it to buy more shares?

My job generates income.
My investments generate income.

Income is income. What I choose to do with that income doesn't matter.

The difference is that I don't see the $100 in mutual fund dividends. (According to the IRS, you're right, since dividends are taxed -- when in a taxable account, of course -- but I'm looking at it from a practical point of view: since I don't see the $100 in mutual fund dividends in any cash account, it's not income.)

A better example: dividends generated by investments in a 401(k) account: according to your rule, they're income, but I'm sure not spending it, and the IRS isn't taxing it (yet). When I retire, then it'll be income.

[Nutria]

So does it only count as income if you spend it right away?

Yes to the IRS, but practically it's not "real" unless it's at any point in a cash account.

[disneysteve]

The difference is that I don't see the $100 in mutual fund dividends.

I don't see the $26,000 that goes into my 401k each year. Does that mean that isn't income either because it never passes through a cash account?

I "see" the dividends and capital gains. They are clearly spelled out on the statements from the investment companies. It just so happens that I choose to reinvest them as right now we don't need that money to pay our bills.

Interesting to see how others define income so very differently.

[Nutria]

I don't see the $26,000 that goes into my 401k each year. Does that mean that isn't income either because it never passes through a cash account?

You see it on your pay stub, and on your W-2.

[disneysteve]

You see it on your pay stub, and on your W-2.

Just as I see dividends and capital gains on my monthly statements and on my 1099s. I fail to see the difference (and so does the IRS).

Do you consider interest on your savings account to be income? How about interest accruing on a CD?

[Nutria]

Just as I see dividends and capital gains on my monthly statements and on my 1099s. I fail to see the difference (and so does the IRS).

Do you consider interest on your savings account to be income? How about interest accruing on a CD?

It's a matter of utility. Does someone (besides the IRS) utilize this money as income? If so, it's income. If not... it's not income.

[disneysteve]

It's a matter of utility. Does someone (besides the IRS) utilize this money as income? If so, it's income. If not... it's not income.

So money I earn but don't spend isn't income. Is that your definition?

[Nutria]

So money I earn but don't spend isn't income. Is that your definition?

I wrote, "Does someone (besides the IRS) utilize this money as income?" for just that objection... Note the word "someone": your employer utilizes that money as income (for you, of course); thus, it's income.

Bottom line: income is like pornography; I know it when I see it.

[disneysteve]

I wrote, "Does someone (besides the IRS) utilize this money as income?" for just that objection... Note the word "someone": your employer utilizes that money as income (for you, of course); thus, it's income.

Now I'm even more confused about your definition. Money my employer pays me is income regardless of what I do with it but money Vanguard pays me is not, unless I spend it and then it is.

I certainly hope you don't go by your definition when filing your taxes.

[Nutria]

Now I'm even more confused about your definition. Money my employer pays me is income regardless of what I do with it but money Vanguard pays me is not, unless I spend it and then it is.

Effectively? Yes.

I certainly hope you don't go by your definition when filing your taxes.

I mentioned excluding the IRS from this utilitarian definition a half a dozen times, and yet you make this comment. It's very distressing.

[disneysteve]

Effectively? Yes.

I mentioned excluding the IRS from this utilitarian definition a half a dozen times, and yet you make this comment. It's very distressing.

Sorry. Not trying to be difficult. I was really trying to understand what you were saying. I think this is the first time I’ve ever encountered someone who doesn’t consider interest, dividends, and capital gains to be income. I just found that to be an interesting point of view.

[Nutria]

Sorry. Not trying to be difficult. I was really trying to understand what you were saying. I think this is the first time I’ve ever encountered someone who doesn’t consider interest, dividends, and capital gains to be income. I just found that to be an interesting point of view.

I will consider them income when I retire... (And I do consider them as income when paying taxes, not that I've got much taxable dividends.)