Are You Self-Employed?

During tax time there are typically more questions than answers among tax payers. Everyone wants to know what deductions and exemptions they qualify for so that they won't have to pay more money to the government than absolutely necessary. One question that's often asked concerns the issue of self-employment; namely, exactly who does the IRS consider to be legally self-employed? People often hobbies and leisure time activities from which they've made money. For example, EBay is a popular avenue to make extra money by selling things that may just be lying around the house. But, does that actually qualify the seller as self-employed? Let's take a closer look.

According to the IRS, a self-employed individual is someone who's the owner of his or her business enterprise. This classification also includes independent contractors. Independent contractors sell goods and services to others, but they (not the buyers) are the ones that decide how the work is actually performed.

The term "self-employment" covers a wide range of individuals. You don't need to have a business name on file to be considered self-employed. Your business as a freelancer – whether it's writing, photography, or another enterprise – may not necessarily require it. If you're engaged in a service in which you don't particularly need to advertise very much, you may not need to think of a catchy business name.

On the other hand, if you've drawn up business cards and are handing them out like candy, it's a fairly safe bet that you are the owner of a business. You have a name and a product (whether goods or services) that you want others to buy. The work that you do is client-driven, but the control over how the work is completed is still in your hands.

Conventional office space doesn't dictate whether you're self-employed. Small business owners often work from one room of their homes. This strategy is tailor-made to lower the overhead expenses and costs required to get a new business off the ground, thereby immediately maximizing the operation's profit amount. Many a catering business has been started out of someone's home kitchen. Toy businesses have emerged from garages or dens.

Having another job doesn't affect one's self-employment status, either. Working for a traditional employer from nine to five won't prevent Uncle Sam from viewing your other money-making venture as a separate business. There's nothing that says the operation you started to make some extra loot can't be a part-time enterprise.

All of these situations are considered to fall under the heading of 'self-employed.' So, once it's been determined that you are indeed running your own business, you should think seriously about applying for a business license and registering a business name. (This applies to freelancers and other independent contractors, as well.) Self-employment distinctions are important for tax purposes. There are filing requirements additional forms that you must become familiar with. After all, no one wants their friendly neighborhood business enterprise to run afoul of the law. For more information on self-employment designations, visit the IRS website.