Self-employed: Definition, types, and benefits of self-employment

However, self-employment means you’re responsible for self-employment taxes, insurance, and benefits. 

The IRS defines a person as self-employed if they are:

• An individual in business for yourself, such as a sole proprietor 
• The member of a single-member LLC that’s taxed as a sole proprietorship 
• A partner in a partnership
• A member of a multimember LLC that’s treated as a partnership for tax purposes 

If you qualify as self-employed according to these IRS rules, you may need to pay quarterly estimated taxes. These quarterly taxes are for self-employment tax as well as income tax. You have to file an income tax return if your net self-employment income is $400 or more. 

Self-employed individuals work in various fields, such as consulting, writing, or trades—essentially being their boss. 

Self-employed vs. business owner

Self-employment and being a business owner can overlap. The key differences are typically the nature of work, level of control, and responsibility.

Self-employed individuals typically tailor their skills and services to meet the demands of a client or customer, while business owners will have a more established and structured offering.

The easiest way to think of a business owner is someone who has products or services to sell. They may even have a brick-and-mortar business, a storefront, or employees. Note that you can be a sole proprietor and consider yourself a business owner, where you can register as a self-employed business owner. 

Unlike self-employment, being a business owner often involves managing a team and dealing with more complex administrative tasks.

Types of self-employment

Although many people use the term "self-employed" interchangeably with terms like "freelancer,” “independent contractor,” and “sole proprietor,” there are subtle differences. Here are the key synonyms for self-employed individuals: 

Freelancers

Freelancers are self-employed individuals who work on a project-by-project basis for multiple clients, offering their skills and services. 

Freelancing is typical for industries like:

• Writing
• Design
• Programming
• Marketing
• Consulting

Freelancers typically work independently and can choose which projects they take on. They also set their own rates, determine their project timelines, and work from any location. 

Independent contractor

An independent contractor is similar to a freelancer, typically specializing in a particular field and offering their services to multiple clients. The term independent contractor comes from the idea that the individual provides services on a contract basis.  

Like a freelancer, the role of an independent contractor includes executing tasks or projects for a client or organization, using their expertise and skills in exchange for a fee. They have control over their work and handle billing and invoicing clients themselves. 

Sole proprietor

A sole proprietor is an individual who solely owns and operates a business. Unlike freelancers and independent contractors, sole proprietors may offer a range of products or services. For example, they can operate retail stores, online stores, or other types of businesses that sell products. 

Another distinction is the level of legal liability. With a sole proprietorship, the owner assumes full liability for any legal issues or business debts. This means that the owner's assets are at risk if the business faces any legal actions or financial troubles.

Pros and cons of self-employment

Self-employment can have key benefits over being an employee. Being your own boss and making your own decisions is thrilling, but being self-employed also comes with: 

• Flexibility and autonomy: Being self-employed allows you to have more control over your schedules and the ability to work on projects you’re passionate about. 
• Independence and work variety: Self-employment allows for personal and professional growth as individuals have full control over business decisions. It also allows individuals to learn new skills and work on a variety of projects.
• Tax benefits: Self-employed individuals can take various self-employed tax deductions to reduce their taxable income.

However, with the freedom and flexibility come some downsides to being a self-employed individual. For example, you have: 

• Greater responsibility: Self-employed individuals must manage all aspects of the business, including administration, marketing, finance, and client management. This can be overwhelming and time-consuming. 
• Potential financial instability: Self-employment often comes with fluctuations in income, with times of limited or no income.
• Lack of benefits and security: Unlike traditional employment, self-employed individuals do not have access to benefits such as health insurance, retirement plans, or paid time off. 

Unlike employees, self-employed individuals do not have the security of a steady paycheck and may face additional costs and burdens associated with running a business, such as taxes and insurance.

Self-employed examples

Being self-employed can take on many forms. Here are some examples of self-employed jobs or roles: 

• A freelance writer, for instance, works independently and takes on various writing assignments for clients. They are self-employed, which allows them more flexibility in choosing projects and setting their own rates. 
• A photographer who operates their own studio also falls under the self-employed category of self-employed. They manage their own business, handle client bookings, and offer their services directly to customers.
• A food truck owner is another example of being self-employed. They are responsible for managing all aspects of their establishment, such as creating menus and handling finances.
• A woodworker considers themself self-employed, as they build kitchen tables in their woodshop and then sell them for a profit online. 

A lot of self-employed synonyms are interchangeable. The important thing is to ensure self-employment is right for you.

If you are self-employed, ultimately, what you call yourself comes down to personal preference and the message that you most want to send about what you do and what you offer.

Next steps for self-employment success

Self-employment is a rewarding career choice for many individuals and solopreneurs. The freedom and flexibility of being self-employed lets you pursue your passions and work on your own terms. However, staying organized and in control of finances is just as important. 

This is where accounting software built for self-employed individuals like QuickBooks Solopreneur can make a significant difference. By using reliable and efficient accounting software, self-employed individuals can easily manage their expenses, track their income, and stay on top of their taxes.