Who Is a Self-Employed Person?

A self-employed person is an independent contractor or a 澳洲幸运5官方开奖结果体彩网:sole proprietor who reports self-employment income. Self-employed people work for themselves in different trades, professions, and occupations rather than 𒉰working for an employer. Depending on the jurisdiction, self-employed persons may have special tax-filing reܫquirements and may qualify for special tax deductions.

How It Works for a Self-Employed Person

According to the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS), a self-employed individual in the U.S. is someone who:

• Engages in a trade or business as a sole proprietor or an independent contractor
• Is a member of a 澳洲幸运5官方开奖结果体彩网:partnership involved in a trade or business
• Is otherwise in business for themselves (including a part-time endeavor)

In other words, a self-employed person earns income f🎃rom an independent economic activity or pursuit. It is contrasted with a person who works for another individual or company—known as an employer. Even if a freelancer or independent contractor works for only ཧa single client, they may still be a self-employed person.

Self-employed individuals may be involved in a variety of occupations but are generally highly skilled at a particular kind of work. Writers, editors, ♐tradespeople, traders/𝄹investors, lawyers, actors, salespeople, and insurance agents may all be self-employed.

Anyone who is self-employed but not an independent contractor may choose a variety of business structures. The most common are partnership, sole proprietorship, 澳洲幸运5官方开奖结果体彩网:corporation, 澳洲幸运5官方开奖结果体彩网:S corporation, and 澳洲幸运5官方开奖结果体彩网:limited liability company (LLC).

Advantages and Disadvantages of Self-Employment

Advantages

The prime benefit of self-employment is freedom: to do something that you love, to set your own hours, and to decide which 𝐆work you will and will not do.

If you work from home, you can save money on transportation to the office, as well as on the wardrobe that the office requires, and get a 澳洲幸运5官方开奖结果体彩网:tax deduction f🍰or the business use 🎶of your home (more on that below).

You have complete control over establishing your own business, including hiring any additional employees and potential customers. You are not limited by a salary and your creativity in solving problems isn't stymied by a boss with limited vision.

Finally, there is a sense of pride and accomplishment in creating a successful enterprise that 🧔is your domain and yours alone.

Disadvantages

The biggest disadvantage is the uncertainty of risk. Although you aren't limited in what you can earn, you aren't guaranteed a salary. When you have a bad month or two, you must absorb the losses and shoulder all business expenses yourself since you can't turn in an expense report.

There are also financial downsides:

• You must pay the employer half of Social Security and Medicare taxes in addition to paying your half.
• You are not eligible for employer-provided healthcare plans.
• You must fund your own health insurance.
• You have no access to employer-sponsored retirement savings plans, such as a 401(k), and you can’t receive the financial match that an employer frequently contributes to such retirement plans.

How Self-Employed Persons Pay Taxes

A self-employed person has to file annual taxes and pay 澳洲幸运5官方开奖结果体彩网:estimated quarterly taxes. On top of income tax, they also must generally pay a 澳洲幸运5官方开奖结果体彩网:self-employment tax, which is a Social Security and Medicare tax for the self-employed of 15.3%. This equals 12.4% for Social Security (on the first $176,100 in 2025, which is up from $168,600 in 2024) and 2.9% for Medicare with no ceiling.

A self-employed person can deduct the employer-equivalent portion of the tax to lower their 澳洲幸运5官方开奖结果体彩网:adjusted gross income (AGI). For an individual to figure out if they owe self-employment tax, they must determine their net income and loss from their activities on 澳洲幸运5官方开奖结果体彩网:Schedule C. Anyone who has earned at least $400 must pay the tax.

The self-employed may be 澳洲幸运5官方开奖结果体彩网:eligible to deduct expenses for the business use of their home, known as the home office deduction. Under specific IRS rules, you may be able to deduct such things as the portion of your insurance, rent, repairs, security systems, and utilities and services bills that were used for business purposes.

Being a Self-Employed Person in Europe

Individuals who work for themselves in the United Kingdom are classified as sole traders. If a person runs their own business and is responsible for its success and failure, has several customers simultaneously, decides when and how to work, and has other characteristics, then they are likely self-employed.

In the European Union (EU), self-employed persons are defined as those “who work in their own business, professional practice or farm for the purpose of earning a profit, and who employ no other persons.”

The Bottom Line

Self-employed individuals work for themselves rather than for another individual or a company. This gives them the freedom to choose what they do and when they want to do it. But, there are drawbacks—notably, having to pay the employer and employee's portion of the Social Security and Medicare taxes and having to fund your own retirement plan. While you can function as an individual, you can set up a legal entity, such as an S corporation or LLC.