Is Self-Employed the Same as Sole Proprietor?
A self-employed individual simply means the person works for him or herself. It’s just a business term. A sole proprietor refers to someone who owns a business by themselves. A sole proprietor does not work for a company like a traditional employee. Instead, of getting a consistent hourly wage or salary, a sole proprietor would earn income by contracting our services or goods to various clients or businesses.
Definitions and Differences
In many cases, the terms sole proprietor, self-employed, and independent contractor mean the same thing, but there are some distinctions. In this article, we will define each of these and try to make them easier to understand.
Tax and Legal Responsibilities
- Both sole proprietors and the self-employed typically use their own Social Security numbers when filing their taxes, rather than obtaining an Employer Identification Number (EIN) from the IRS.
Sole Proprietorship vs. Self-Employed
- Many people get confused between a sole proprietorship vs self-employed folks. Let me start off by saying a self-employed worker and sole proprietorships are one and the same. Since a sole proprietor operates a business on its own, they are considered self-employed.
Overview
- An independent contractor or sole proprietor who reports self-employment income is referred to as being self-employed. Instead of working for an employer, self-employed people carry out a variety of trades, professions, and occupations for themselves.
Clarifying the Difference
- The difference between sole proprietorship and self-employed is that the latter is a broader category. There are many types of self-employed individuals, including independent contractors and partners.
Conclusion
- Yes, a sole proprietor is self-employed because they do not have an employer or work as an employee. Owning and operating your own business classifies you as a self-employed business owner.
Additional Information
- While a self-employed individual and a sole proprietorship are similar in that they both involve someone working for themselves, the main difference is that a sole proprietorship is a formal business structure while self-employment is not.
Business Structure
- Both independent contractors and sole proprietors are self-employed people who haven’t set up formal business entities, like limited liability companies or corporations.