Which income sources are classified as nonpassive income?

Nonpassive income includes earnings that are actively garnered through direct effort or participation. Salaries, wages, commissions, and self-employment income all fall into this category because they require the individual to provide labor or services in exchange for payment. This involvement signifies a direct role in generating the income, distinguishing it from passive income sources, which can be earned without substantial active participation.

In contrast, nonpassive income does not encompass sources like interest, dividends, and rental income, which are typically seen as passive since they can be earned without active involvement in the underlying business operations. Additionally, capital gains and stock options, while they can result from active trading strategies, are generally viewed as investment returns that do not necessitate ongoing effort, placing them in a different category. Lastly, royalties, gains, and passive investments, by their nature, indicate a lack of direct participation in the income-producing activities, further confirming that option B identifies the correct sources of nonpassive income.