Clarifying Definitions
- A self-employed individual means the person works for him or herself.
- A sole proprietor refers to someone who owns a business by themselves.
Key Differences and Similarities
- Sole Proprietorship vs Self-Employed
- Self-Employed vs Sole Proprietor
A sole proprietor operates a business on its own and is considered self-employed. Both sole proprietors and the self-employed typically use their own Social Security numbers when filing taxes, rather than obtaining an Employer Identification Number (EIN) from the IRS.
Exploring Sole Proprietorship
A sole proprietor is a person who owns and conducts a business on their own. They are personally accountable for the debts and legal responsibilities of the company.
Understanding Self-Employment
Many people mistakenly think that a sole proprietorship and being self-employed are different when in fact they are the same. If you work as a sole proprietor or an independent contractor and report self-employment income, you are considered self-employed.
Clarifying Entities
The terms sole proprietor, self-employed, and independent contractor often mean the same thing. However, it is essential to note that a sole proprietorship is a non-registered, unincorporated business run solely by one proprietor with no distinction between the owner and business.
Defining Categories
The difference lies in self-employment being a broader category, including partners. A sole proprietor is self-employed as they do not have an employer and work for themselves. Self-employment involves earning income from your own business, trade, or profession rather than wages from an employer.
Advantages of Sole Proprietorships
One of the advantages of a sole proprietorship is its simplicity and ease of setup with fewer regulations compared to other business structures.