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Earned income and capital gains (or "portfolio income") are acquired in different ways. Which statement describes how they are different?

A. Earned income and capital gains are both based on the number of hours you work.
B. Earned income is payment for employment, while capital gains are produced by your investments.
C. Capital gains are received if you manage the company, but earned income is received if you are an employee of the company.
D. Earned income is when you make the investment directly, but capital gains are when someone else has managed your investments.

Please select the best answer from the choices provided.



Answer :

GinnyAnswer

Final answer:

Earned income is payment for employment, while capital gains are realized from the increase in the value of assets like stocks or real estate that are sold for a profit.


Explanation:

Earned income and capital gains are acquired in different ways. Earned income is payment for employment, such as wages, salaries, commissions, and tips received for working hours, while capital gains are realized from the increase in the value of assets like stocks or real estate that are sold for a profit.

Capital gains are gained throughinvestments where the value of the asset appreciates, resulting in a profit upon sale. On the other hand, earned income is derived from labor-related activities, and the wages are directly proportional to the number of hours worked and the hourly wage set by the employer.

While capital gains can occur from the management of assets like stocks, for which one earns dividends and capital appreciation, earned income is associated with being an employee of a company and receiving compensation for work done.


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