Bring in $82 Each Month in Passive Income and Pay $0 in Taxes!

Passive income can be an excellent way to create funds in retirement. But it doesn’t just have to be retirement. Passive income is great at any stage of your life, whether you could use the extra cash to pay down debt, to get on top of an emergency fund, or even to start saving for a home!

In any case, passive income is not just beneficial but incredibly important as part of any investment portfolio — especially if you follow these steps.

Get out of taxes

If you want to create passive income, then doing something like renting a home out isn’t for you. Those funds are, first off, hard to come by. Second, however, is that those funds are subject to taxation.

Instead, consider investing in the Tax-Free Savings Account (TFSA). The TFSA is beneficial because it’s, as mentioned, tax-free. This means that as long as you stay within the contribution limits, you can create income that the Canada Revenue Agency (CRA) cannot tax.

That goes for no matter when and how you take it out. Do you need that cash to replace a car engine? Take it out. Do you want to keep saving once you reach retirement? That’s just fine. The TFSA is something you can use for any of your savings goals.

Find the right dividend stock

Now if you’re going to create passive income, a dividend stock is sure to come to mind. But be careful. A dividend yield isn’t the only thing you should be thinking about. Finding the right dividend stock means you’re looking for a company that has a long history of returns, too.

After all, it’s not just dividends that create passive income but returns as well. This is why I tend to recommend looking to companies that have steady and stable returns and dividend increases. Right now, a strong option would be Fortis (TSX:FTS).

Fortis stock is a stable option as a utility provider. The company has been around for decades and, in fact, is a Dividend King as of its next dividend payment. That means it has increased its dividend payments each year for the last 50 years! So, if you’re looking for passive income, this is certainly a strong choice.

Invest and invest again

Now, if you want to create a large amount of passive income, the best option is to reinvest dividends as you go. Dividend income can be used to purchase more shares of Fortis stock, for example, creating even more passive income for down the line.

Then, you’ll also notice that Fortis stock is down right now, but not by much. This, too, allows for the opportunity to create passive income through returns. Shares are up 5% in the last year but down 13% since hitting 52-week highs. So, here is how much you could create in tax-free passive income with a $5,000 investment should the stock reach 52-week highs again.

And just like that, you’ve created $766 in returns and $219.48 in dividend income. That’s total passive income of $985.48, or about $82 per month! And all from a stable stock that will continue producing tax-free passive income.