A self-employed taxpayer is an individual who is in business for himself or herself, and whose business is not incorporated. You are considered self-employed if the following applies to you:
- You carry on a trade or business as a sole proprietor.
- You are an independent contractor.
- You are a member of a partnership.
- You are in business for yourself in any other way.
An activity qualifies as a business if your primary purpose for engaging in it is for income and profit, and you are involved in the activity with continuity and regularity. Also, an activity generally qualifies to be a business if you have made profits for three years out of the last five years.
If you operate a business, you must report all income earned by the business, even if no reporting document (1099s) is received. You are a sole proprietor if you alone own a business, and the business is not incorporated. Consequently, if you are an independent contractor, you are actually a sole proprietor.
Self-employment income includes the following:
- Income from sole proprietorship and non-employee compensation (Form 1099-Misc).
- Corporate director’s fees.
- Partnership income from a partnership operating a business (unless you are a limited partner).
- Guaranteed payments from a partnership (including limited partners).
- Bartering income.
- Real estate rent, if received as a real estate dealer.
- Income paid to retired insurance agents based on commissions received prior to retirement.
- Newspaper vendor’s income, if vendor is 18 or over.
- Interest received in a trade or business.
- Net earnings of members of the clergy (unless taken a vow of poverty).
- Gains or losses by a dealer in options and commodities.
- A professional fiduciary who administers a deceased person’s estate.
The following income is not considered self-employment income:
- Shareholder’s share of an S corporation’s taxable income.
- Fees received for services performed as a notary public.
Tax law mandates that you must file a tax return if your net earnings from self-employment are at least $400.
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