Of the three types of income recognized by IRS (Internal Revenue Service), passive income is the income resulting from cash flows received on a regular basis.

Passive income can be derived from renting property or dividends from any investment. Taxes are levied on passive income.

Creating passive income is a no-brainer. It is all about using resources to earn money and make some income. Here are some of the smart ways of creating passive income.

Peer-to-peer lending
Many investors out there do not qualify for loans owing to their credit scores. Peer-to-peer lending refers to online lending clubs, where you can loan money to other people at a rate of 6%–10% per year. The returns are more than those offered by savings accounts or even money markets. The safest investments like the U.S. Treasury securities yield returns of less than 1%. Investing in lending funds comes at a cost. If you start with a small investment, say $1000, the chance of you losing the principal amount is low as compared to when you start with a large investment.

Rent out
Empty nesters can earn some steady income by renting out a part of their house on short-term basis. List your residence on Airbnb. Airbnb is a very popular portal for renting homes and generating income in the process. Many visitors are not comfortable staying in a hotel because they are quite expensive. For people using Airbnb, staying in your property will be much cheaper than staying in a hotel, and for you, it generates extra income.

Be a Youtuber
These days, every second person you encounter is busy uploading videos and video logs on YouTube. One can make money from these videos every time someone clicks on them or watches them. The key to garnering more viewers is to promote yourself on social media and create buzz for your content. Once you connect with viewers and have a good number of subscribers, money will start pouring in.

Crowdfunding
If investing in real estate by yourself is not an option, try crowdfunding, wherein you can pick a property of your choice and invest as little as $1000. Fundrise and Realtyshares are some of the eREITs (Real Estate Investment Trust) that give investors an opportunity to invest in real estate through online portals. The advantage of investing in crowdfunding is that one does not have to go through the nitty-gritty of buying real estate.

Be a blogger
If writing is your passion, become a blogger. Earn money through writing. Although a blogging business takes time to pick up, once you become popular and readers love your work, you can make money through advertisements on your blogging site.

Affiliate marketing
Probably one of the most popular ways of earning income, affiliate marketing can earn you a good passive income provided you have a large platform and a sizeable audience. You can sell products and services to your audience through online marketing.

Earning passive income refers to the generation of steady income that requires less effort to maintain the cash flow. People have their own reasons for wanting a passive source of income.