Who does the IRS consider as being Self-Employed for tax purposes?
The IRS has stated that a taxpayer is self-employed if any of the following apply to that taxpayers as shown below;
1. A taxpayer carries on a trade or business as a sole proprietor or an independent contractor.
2. A taxpayer is a member of a partnership that carries on a trade or business.
3. A taxpayer is in business for his or herself.
How does the IRS define a Trade or business?
A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. The facts and circumstances of each case determine whether or not an activity is a trade or business. The regularity of activities and transactions and the production of income are important elements. The IRS has specifically stated that a taxpayer does not need to actually make a profit to be in a trade or business as long as that taxpayers has demonstrated that they have a profit motive.
How does the IRS define a Part-time business?
A Taxpayer does not have to carry on regular full-time business activities to be self-employed. The IRS considers having a part-time business in addition to your regular job or business to be considered as being self-employment.
How does the IRS define a Sole proprietor?
A taxpayer is considered a sole proprietor if he or she owns unincorporated business by theirselves.
Who does the IRS consider as an Independent contractor?
The IRS has stated that taxpayers such as "doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors."
But, the IRS has stated that "whether these people are independent contractors or employees depends on the facts in each case. 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. The earnings of a person who is working as an independent contractor are subject to SE tax."
Further, "a taxpayer is not an independent contractor if they perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed. If an employer-employee relationship exists (regardless of what the relationship is called), that taxpayer is not an independent contractor and his or her earnings are generally not subject to SE tax."