What income counts as trading income vs other income?

Understanding the question: why “trading income” vs “other income” matters

When people ask, “What income counts as trading income vs other income?” they’re usually trying to work out how a particular stream of money should be categorized for tax and reporting purposes. That distinction matters because different categories can trigger different rules: how you calculate profit, what expenses you can deduct, what forms or schedules you file, whether you owe additional contributions, and how losses can be used. It can also matter for business decisions like whether to register a business name, charge VAT/sales tax, keep formal accounts, or set aside money for tax payments.

This article explains the practical difference between trading income and other income in a way that helps you classify common real-life situations: selling goods online, freelancing, content creation, renting property, investing, crypto activity, side hustles, and one-off sales. It also highlights the grey areas where the answer depends less on the label you prefer and more on what you actually do in practice.

What “trading income” generally means

Trading income is typically money you earn from carrying on a trade, business, profession, or vocation. In plain terms, it’s income that arises because you’re providing goods or services in an organized, profit-seeking way. The key idea is that trading income usually comes from active commercial activity: you do something repeatedly or systematically, you take on some degree of business risk, and you aim to make a profit.

Trading income often has features like these:

1) Regularity and repetition: You make sales or provide services more than once, often on an ongoing basis.
2) Commercial organization: You market yourself, keep records, have a website, invoice clients, hold stock, or use business processes.
3) Profit motive: You intend to make a profit (even if you’re not profitable yet).
4) Value creation: You add value through your work, skill, time, or operations (for example, you buy materials and produce items).
5) Customer-facing activity: You have clients or customers and you deliver something to them.

If your income arises because you’re essentially “running something” (even small), it often looks like trading income.

What “other income” generally means

Other income is a broad bucket that covers money you receive that isn’t from trading. Depending on the tax system, it can include employment income (wages), investment income (interest and dividends), property income (rent), royalties, pensions, certain benefits, and miscellaneous receipts that don’t fit neatly into a trade.

Other income often has different characteristics:

1) Passive or semi-passive: You may receive it with limited ongoing work (for example, interest on savings).
2) Not organized as a business: There’s no real commercial structure or repeated “deals” with customers.
3) Comes from ownership rather than activity: You earn because you own an asset (shares, bonds, property) rather than because you’re actively selling goods/services.
4) One-off or incidental: A single transaction can be “other income” if it’s not part of a broader pattern of trading.

Note that “other income” doesn’t mean “not taxable.” It’s simply a different category of taxable (or sometimes non-taxable) receipts.

Trading income vs employment income: you can’t choose the label

A common misunderstanding is thinking you can decide whether you are “self-employed” (trading income) or “an employee” (employment income). In most jurisdictions, the label is determined by the underlying relationship: who controls how the work is done, whether you can send a substitute, whether you bear risk, how you’re paid, and whether you’re integrated into the employer’s organization.

Employment income usually looks like: a salary or wages, paid regularly, with limited scope to increase profit by managing costs, with the employer providing tools and directing the work. Trading income usually looks like: you invoice clients, you set prices (or negotiate), you may work for multiple clients, and you can increase profit by working efficiently and controlling expenses.

If you’re paid through payroll, your “income” is typically employment income even if you also do side work that counts as trading income. Many people have both at the same time.

The most common trading income examples

Here are situations that are usually trading income because they involve providing goods or services with a profit motive:

Freelancing and consulting

If you’re a designer, developer, marketer, writer, coach, tutor, therapist, or consultant who charges clients for your time or deliverables, that’s classic trading income. You’re selling services, often repeatedly, and you typically have business expenses (software subscriptions, marketing, professional development, equipment).

Selling products: online shops, marketplaces, and handmade goods

Selling items through an online store, a marketplace platform, local fairs, or social media is often trading income if it’s more than occasional. If you buy inventory, make products, package and ship orders, and run promotions, it’s hard to argue it’s not a trade.

Construction, trades, and gig work

Plumbers, electricians, builders, decorators, cleaners, couriers, and many gig-economy workers often have trading income when they operate as independent contractors. The key factor is whether they’re truly running their own business rather than being treated as employees under the hood.

Creative services and content production as a business

Photographers, videographers, musicians, and other creatives may have trading income where they are commissioned, sell packages, license work as part of a business, or provide event services. Content creators can also generate trading income when they operate with the structure and intent of a business.

Common “other income” categories

Here are receipts that typically fall outside trading:

Interest and dividends

Interest from savings accounts or bonds, and dividends from shares, are generally treated as investment income rather than trading income. You earn because you own the asset, not because you’re selling a service to customers.

Capital gains

Profits from selling capital assets (shares, property, collectibles) are often treated separately from trading profits. Even if the sale generates a “profit,” it might be a capital gain rather than trading income. Whether it’s capital or trading depends heavily on your intent and behavior, which we’ll explore later.

Rental income

Income from letting property is typically classified as property income rather than trading. Even if you actively manage the property, most systems treat property letting as its own category. However, providing substantial services (like hotel-style stays with cleaning, meals, concierge services) can shift the activity closer to a trade in some cases.

Pensions and benefits

Pensions, annuities, and certain government benefits are usually in their own categories and not treated as trading income.

Royalties and licensing

Royalties can be tricky. Sometimes they’re treated as investment-like income from owning intellectual property. Other times they can be trading income if the licensing activity is part of an ongoing business (for example, a company that actively develops and licenses software or patents as its core activity).

The grey area: when a “profit” is not necessarily trading income

Not every profit is trading income. A person can make money without running a trade. For example, if you sell your old phone for more than you expected, that doesn’t automatically mean you’ve generated trading income. The core question is whether your activity looks like trading: organized, repeated, and profit-seeking in a commercial sense.

A helpful way to think about it is: trading income usually comes from operating like a business; other income often comes from ownership, employment, or isolated transactions.

Key factors used to distinguish trading from non-trading

Different tax authorities use slightly different tests, but the practical factors are very similar. Consider these when deciding how an income stream should be categorized:

1) Frequency and repetition

If you do something repeatedly (regular sales, recurring client work), it leans toward trading. A one-off sale is less likely to be trading unless it’s part of a larger plan (for example, buying something specifically to sell it for profit).

2) Intent at the start

Intent matters. Buying an item to use personally and later selling it is different from buying items with the intention of reselling for profit. With investments, intent can still be complex, but the initial plan is a strong indicator.

3) Level of organization and planning

Do you advertise? Keep inventory? Maintain accounts? Have a brand? Use a dedicated bank account? Create a business plan? These point toward trading.

4) The nature of what you’re doing

Some activities are inherently trade-like, such as providing services to paying clients. Other activities are inherently investment-like, such as collecting dividends. In between are activities like property letting, licensing, or speculative buying and selling.

5) How you generate profit

Trading profits often come from adding value through work: sourcing, manufacturing, improving, bundling, marketing, or providing expertise. Investment profits usually come from market movements or yields from ownership.

6) Risk and responsibility

Traders typically bear business risk: returns, customer complaints, price changes in supplies, marketing costs, and so on. Employees usually bear less risk. Investors bear market risk, but not usually customer-facing risk.

Practical examples: trading income vs other income

Let’s apply the concepts to real scenarios. These examples are simplified, but they show the logic behind typical classifications.

Example 1: Selling personal items

You sell old clothes, a used laptop, and a bicycle you no longer need. This is usually not trading. You’re disposing of personal possessions, not running a business. Even if you make a small profit on a particular item, the overall pattern is personal, incidental sales.

Example 2: Flipping items regularly

You buy discounted trainers and electronics from clearance sales specifically to resell online, and you do it every week. You photograph items, write listings, ship orders, and track margins. This looks like trading income because you’re buying with resale intent and operating with commercial organization.

Example 3: Freelance design work

You design logos for clients on evenings and weekends, invoice them, and pay for design software. That income is typically trading income (self-employment) because you’re providing services for profit.

Example 4: A salary plus a side hustle

You have a full-time job and also run a small online shop. Your salary is employment income. The shop revenue (minus expenses) is trading income. Having both categories is normal; each is handled under its own rules.

Example 5: Dividend income from shares

You own shares in a company and receive dividends. That is generally investment income, not trading income, even if you check your portfolio daily.

Example 6: Renting out a room

You rent a spare room in your home to a lodger. This is typically property-related income rather than trading. If you also provide hotel-like services and operate multiple short-term lets with a high level of services, the classification can become more complex.

Example 7: YouTube and content monetization

Ad revenue, sponsorships, affiliate commissions, and paid subscriptions can be trading income if you operate your channel as a business: regular content production, marketing, brand deals, and a profit motive. If you receive a one-off prize or a small, incidental payment with no ongoing commercial activity, it might be treated differently depending on the specifics. In many cases, consistent monetization activity looks like a trade.

Example 8: Royalties from a book

If you write a book and receive royalties, the income may be treated as royalties or trading depending on the system and whether writing is your profession. If you’re an author operating as a business with ongoing writing and marketing activity, it can resemble trading. If you wrote one book years ago and collect occasional royalties with minimal ongoing activity, it can resemble passive royalty income.

Financial trading and investing: does buying and selling assets count as “trading income”?

This is where people get most confused, because the word “trading” is used in everyday language to mean buying and selling shares, forex, options, or crypto. But “trading income” in a tax sense often means profits from a trade or business. The question becomes: are you investing (capital gains and investment income), or are you carrying on a financial trading business (trading income)?

In many systems, most individuals who buy and sell shares are treated as investors, meaning profits are usually capital gains and losses are capital losses. However, if your activity is very frequent, organized, and resembles a commercial dealing business, it may be argued to be trading. The threshold can be high, and it depends on facts: frequency, sophistication, time spent, short holding periods, and whether you’re effectively “dealing” rather than “investing.”

Practical indicators that lean toward investment treatment include: holding positions for longer periods, focusing on dividends or long-term growth, and not operating a formal business of dealing. Indicators that can lean toward trading treatment include: very high volume, short-term speculation as your main occupation, systematic dealing strategies, and business-like operations. Even then, classification can be contentious, and professional advice is often warranted if large sums are involved.

Crypto activity: trading income, capital gains, or something else?

Crypto can produce many different types of receipts: buying and selling coins, staking rewards, airdrops, mining, liquidity provision, and NFT transactions. Some of these look like investment activity (disposing of assets for gains), while others look like income receipts (rewards) or business activity (mining operations).

A simplified way to think about crypto is:

1) Buying and later selling crypto: often resembles capital gains/investment activity, unless it rises to the level of a trade.
2) Mining as an organized operation: can resemble trading income (a business) if done with scale and profit motive.
3) Staking rewards: can resemble income receipts rather than capital gains (you receive something because you held or staked an asset).
4) Airdrops: can vary widely; the reason you received them and what you did to earn them can affect classification.
5) NFT creation and sales: if you’re an artist minting and selling NFTs as a business, that leans toward trading income; occasional disposals may differ.

Because crypto activities can blend investment-like and business-like features, the best approach is to break down each stream separately rather than trying to label “all crypto” as trading or other income.

Platforms and the “gig economy”: when platform payouts are trading income

Income from platforms (delivery apps, freelancing marketplaces, ride-hailing, task services, craft marketplaces) is commonly treated as trading income when you’re effectively self-employed. You provide a service to customers, you can often choose when to work, and you typically bear some costs (fuel, equipment, platform fees).

However, some platforms operate in ways that make workers look more like employees or workers under employment law. Even if the platform issues payments without payroll deductions, the underlying relationship may still be scrutinized. The practical takeaway: you should not assume that “paid through an app” automatically equals trading income, but it often does if you truly operate independently.

Hobby income vs trading income: when a hobby becomes a trade

Many people start earning money from a hobby: baking, crafts, photography, gaming, streaming, gardening, or repairing furniture. The moment money comes in, they worry they’ve become “a business.” The honest answer is that hobbies can evolve into trades, but the change is usually about behavior and intent rather than the mere existence of income.

If you occasionally sell a few homemade items to friends at cost, that may look like a hobby with incidental receipts. If you start pricing for profit, taking orders, advertising, producing regularly, and tracking costs, it looks much more like trading.

A useful self-check is: if someone asked you, “What do you do?” would you comfortably say, “I run a small business selling X,” and could you show basic records that support that? If yes, you’re likely closer to trading.

One-off payments and miscellaneous receipts

Sometimes money arrives that doesn’t fit any neat pattern: a referral bonus, a small honorarium for a talk, a prize, compensation, or a settlement. These can fall into various “other income” buckets depending on what the payment is for.

If you’re paid for a one-off service (for example, giving a talk), it can still be trading-like if it’s part of your professional activity. If it’s truly isolated and not connected to any trade, it might be miscellaneous income rather than trading. The key is the connection: is the payment linked to a trade you carry on, or is it separate?

Grants, sponsorships, and donations

Grants and sponsorships can be particularly confusing. A grant received to support a business activity may be treated as trading-related, especially if it subsidizes business costs or is contingent on delivering something. Sponsorships paid to a creator or athlete in exchange for promotion usually resemble trading income because they’re payment for commercial services (advertising).

Donations can vary. If people “donate” to support your work and you provide perks, content, or access in return, that can look like trading income because it’s functionally a payment for something. Genuine gifts given with no expectation of goods or services can be treated differently, but the facts matter a lot, especially where platforms blur the line between tips, donations, and subscription-like support.

How expenses and deductions often differ between trading and other income

One reason classification matters is the expense rules. Trading income is typically taxed on profit, meaning you generally deduct allowable business expenses incurred wholly and exclusively for the trade. That can include materials, tools, professional fees, marketing, certain travel, and portions of home costs where you have legitimate business use.

Other income categories may have restricted or different expense rules. For example, investment income often has limited deductible expenses for individuals. Property income often allows deductions tied specifically to property letting. Employment income often has strict rules and may not allow deduction of many expenses unless they are required and not reimbursed.

This is why it’s risky to “force” something into the trading box just to claim more expenses. The classification should reflect reality. If you are genuinely trading, you should normally be entitled to claim appropriate business expenses. If you are not, trying to treat it as trading can create compliance problems.

Losses: why the category can change the impact

Losses are another area where the category matters. Trading losses may sometimes be used against other income (depending on local rules and conditions), carried forward, or used in flexible ways. Capital losses usually have tighter limitations, often only offsetting capital gains. Property losses may have their own restrictions as well.

If you have a loss-making side activity, you might wonder if it “counts” as a trade. But a loss does not automatically mean it isn’t trading. Many genuine businesses lose money at first. The key question is still whether you’re carrying on a trade with a real profit motive and a business-like approach.

Mixed activities: splitting one project into trading and other income streams

Sometimes a single overall project produces multiple types of income. For example:

1) A photographer may earn trading income from shoots, and investment income from interest on savings, and property income from renting a studio space they own.
2) A software developer might earn trading income from consulting and also receive royalty-like income from licensing a tool they created.
3) A landlord might earn rental income but also run a separate trade providing property management services to others.

In these cases, it is often helpful to treat each stream separately in your records, even if it all flows into the same bank account. The more clearly you can map “what money came from where,” the easier it is to classify, report, and defend your position.

Borderline scenarios you should think carefully about

Some situations are famously borderline. Here are a few, with the kinds of facts that tend to matter.

Short-term rentals and “serviced” accommodation

If you rent out a property as a standard let, it’s typically property income. If you provide substantial services akin to a hotel—frequent cleaning during stays, linen changes, reception-like service, meals, concierge support—the activity can start to look more like a trade. The line depends on how service-heavy the operation is and how the law in your jurisdiction treats short-term accommodation.

Affiliate marketing

Affiliate commissions can be trading income if you actively run a site, channel, or mailing list as a business, producing content and marketing offers. If you occasionally share a link and receive a small commission, it may still be income, but whether it constitutes a trade often depends on regularity and business-like effort.

Reselling tickets or collectibles

Occasional sales from a personal collection may look like capital or personal disposals. Regular buying and selling for profit, especially with organized sourcing and marketing, leans toward trading.

Buying property to renovate and sell

If you buy a property to live in and later sell, that’s usually a personal or capital transaction. If you buy properties specifically to renovate and sell repeatedly, that can look like a property dealing trade. The intent at purchase, frequency, and business-like approach are crucial.

Recordkeeping: the simplest way to support your classification

Regardless of category, good records reduce stress. If you believe you have trading income, keep evidence that supports the business nature of the activity: invoices, receipts, mileage logs, marketing spend, platform statements, client communications, and a clear summary of income and costs.

If you believe something is other income (like investments or one-off sales), keep records that show why: purchase history, holding period, personal use evidence, and notes on why the transaction was not part of a business pattern. You don’t need to overcomplicate it, but a basic paper trail can be invaluable if questions arise later.

How to self-assess your income stream: a practical checklist

If you’re unsure whether a particular stream is trading income or other income, run through these questions:

1) Am I doing this repeatedly or on an ongoing basis?
2) Did I set out to make a profit, or is any profit incidental?
3) Am I operating in a business-like way (branding, marketing, records, pricing)?
4) Do I add value through work (services, making goods, improving items) rather than merely holding an asset?
5) Do I have customers or clients, and do I provide something to them?
6) Do I bear business risk (refunds, stock, overheads, complaints), or is my risk mainly market price fluctuation?
7) If I stopped putting time and effort in, would the income likely stop quickly (trade-like) or continue (investment-like)?

More “yes” answers to the business-like questions generally point toward trading income. More “yes” answers to the ownership/passive questions generally point toward other income categories.

Common mistakes people make when classifying income

Here are a few pitfalls that come up repeatedly:

1) Confusing platform labels with tax categories: a platform calling you a “creator” or “seller” doesn’t determine whether you are trading; your real-world activity does.
2) Assuming frequency alone decides: repetition matters, but intent and organization matter too.
3) Treating everything as trading to deduct expenses: classification should reflect reality, not convenience.
4) Forgetting that one person can have multiple income types: employment, trading, rental, and investment income can all exist side by side.
5) Ignoring the start-of-activity evidence: what you intended when you began often becomes crucial in borderline cases.

When you should seek tailored advice

Some scenarios are high-stakes enough that getting personalized tax advice can be worthwhile: large sums, complex crypto activity, significant asset-flipping, short-term rental operations, or a situation where the classification changes your liability materially. Also consider advice if you’re moving from occasional side income to a serious business, because registration obligations and reporting rules can change as you scale.

Bringing it all together

Trading income generally comes from running a business-like activity—selling goods or services with a profit motive, regularity, and organization. Other income covers many non-trading receipts: wages, interest, dividends, rental income, pensions, and various one-off or ownership-based receipts. The line between the two is usually drawn by looking at the reality of what you do: how often you do it, why you started, how organized it is, and whether you’re acting like a business or simply receiving money because you own something or had an isolated transaction.

If you’re uncertain, break the problem down by income stream, document what you do, and apply the practical checklist. Most classification challenges become clearer once you focus less on the label and more on the underlying facts of your activity.