Self-Employed Individuals
Self-employment is when you work for yourself instead of an employer. In general, tax authorities are likely to see self-employed people as self-employed only if the individual decides to be legally defined as such or is producing money like rent from properties in which he is not paid for. The amount of income from other sources is also taken into account as is the cost of any assets owned by the individual. This is often very tricky because income and expense can be sourced in many different ways, and because they can be scattered around so much it is hard to say with any certainty whether an individual is self-employed.
In order to clarify whether an individual is self-employed the IRS has devised a scale called QNU, which stands for Qualified Non Self Employed. To be eligible as a QNU self-employed person you must be able to prove that you are running a business, and that your income is enough to keep you above the poverty line. That means that if you have more than one income (like a job) and you are still paying those expenses, you are not self-employed but can claim a status as a sole proprietor if you have more than one income, though this is considered much harder to do.
One of the main things that you must do as a self-employed person is hire employees. Employees are the raw material that your business can feed on for the rest of its life. It doesn’t matter how good you are at your job if you don’t have people to pay you! This is where the dividing line between a self-employed person and a sole proprietor can sometimes be unclear. If you hire employees and make them employees with the right benefits, you can both be treated as self-employed. However, if you do not offer health insurance or any other type of coverage, you may not be able to state yourself as a self-employed person.
Do You Have Tax Options That Include Sole Proprietorship?
When you do not hire employees to run your business, you can also work as an independent contractor. An independent contractor is not considered to be self-employed but instead works for another company without being officially employed. Many businesses and self-employed individuals work as independent contractors. If you do not have employees to pay, you can take on the services of an independent contractor. If you do hire an independent contractor and they perform services as promised and fulfill their duties in a timely manner, you are able to state you are receiving fair market value for the services.
Some businesses try to trick self-employed individuals into thinking that they are working under different business structures. In other words, these people are lured by claiming that they are running their own limited liability company or limited partnership. Unfortunately, these types of business structures do not really exist. It is difficult for a sole proprietor to set up his own limited liability company or LLC because he is personally liable for all business debts.
Another confusion is that of the term “personal tax return”. When self-employed individuals claim that they are self-employed individuals, it is difficult for the IRS to differentiate their business income taxes from their personal tax returns. If you are able to prove that you were conducting business as a sole proprietorship, a CPA can prepare your personal tax return. Once it is prepared, the IRS has no choice but to treat your personal tax return as if it was a business income tax return.
