Being your own boss: It’s a dream for many Americans. Not having to answer to anyone. Creating your own terms and expectations. The pride derived from succeeding in what you created. These are some of the many benefits entrepreneurs gain from being their own boss.
Of course, being self-employed comes with its own unique set of challenges and headaches. Like taxes, for example. While we here at Padgett enjoy our work, it’s our understanding that dealing with taxes isn’t everyone’s favorite way to spend their day. Here are a few tax tips for the self-employed. Let’s hope they ease the burden of running your own ship.
Who qualifies as self-employed?
There are a number of taxpayers that qualify as the self-employed, who are therefore subject to the self-employment tax.
One of those taxpayers is the sole proprietor. Put simply, a sole proprietor is someone who owns and operates their own unincorporated business by themselves. However, if your business operates as an LLC and you treat that LLC like a corporation, you are not considered a sole proprietor by the IRS—even if you are running things by yourself. However, being a member of an LLC does not necessarily exclude you from self-employment tax. It depends on your relationship within the LLC, your duties within the LLC, and how the LLC is taxed itself.
Another of the self-employed is the independent contractor. From writers to doctors, accountants to bloggers, there is a gigantic range of professions that can fall under the independent contractor category. According to the IRS, “The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”
Others who are subject to the self-employment tax are members of partnerships. A partnership is a joint venture between at least two people who run a trade or business and share in the losses and profits from that trade or business.
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