Monday, August 11, 2008

Working for yourself by any name is still self-employment.

June --

Advertising; New York, NY; 8 years.

What is the point of registering as a sole proprietor business (thus paying self employment tax) versus just being a freelancer and paying regular taxes on 1099s?

All of the sudden there's an item on the tax return that has me paying $13k in self employment tax - beyond the regular taxes!

Should I just forget the "company" and just be me? (FYI, there are no employees in the company - it's me).

Many thanks.
Katie


Oh, Katie, you are so mixed up!! Read this response carefully and also check out and read some of my posts under business entity and here employee vs. self-employed

First of all: A sole proprietor and a freelancer are the same thing.

Your choices are: Employee or a self-employed. There is no middle ground where you work for yourself but pay no self-employment tax.

"Company" does not have a specific meaning.

Whether you call yourself a 1099 worker, sole proprietor, freelancer, subcontractor, free agent, or or independent professional you are self-employed. As a self-employed you are subject to self-employment tax.

If you work as a self-employed and do not form another business entity such as a partnership or a corporation then you are a sole proprietor. You do not need to register as one. You are one. And no matter what term you attach to your self-employment, be it freelancer or 1099er, you must pay self-employment tax!

-- June

2 comments:

Sean Wilson said...

Being self employed also means working more hours than being employed.

You try to do everything yourself. is this cost efective.

In the end it's often better to out source some tasks.

Angela Stringfellow said...

You might be able to take advantage of some tax savings to offset the cost of paying self-employment taxes, plus be able to outsource some of your back-office tasks, such as invoicing your clients, by working with a portable employer of record organization. It's very simple for people who are confused by or simply don't want to deal with handling all the 1099 stuff.