What’s the Difference Between Sole Trader and Self-employed?

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.

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