The purpose of this publication is to provide general information about the federal tax laws that apply to small business owners who are sole proprietors and to statutory employees.
Are you self-employed? You are self-employed if you carry on a trade or business as a sole proprietor or an independent contractor.
Sole proprietor. A sole proprietor is someone who owns an unincorporated business by himself or herself. However, if you are the sole member of a domestic limited liability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation.
Trade or business. A trade or business is generally an activity carried on to make a profit. The facts and circumstances of each case determine whether or not an activity is a trade or business. You do not need to actually make a profit to be in a trade or business as long as you have a profit motive. You do need to make ongoing efforts to further the interests of your business.
You do not have to carry on regular full-time business activities to be self-employed. Having a part-time business in addition to your regular job or business may be self-employment.
Independent contractor. People such as doctors, den- tists, veterinarians, lawyers, accountants, contractors,Contents subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether they are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or to direct only the result of the work and not how it will be done. The earnings of a person who is working as an independent contractor are subject to self-employment tax. For more information on determining whether you are an independent contractor or an employee, see Publication 15-A, Employer's Supplemental Tax Guide.
Statutory employee. A statutory employee has a checkmark in box 13 of his or her Form W-2, Wage and Tax Statement. Statutory employees use Schedule C or C-EZ to report their wages and expenses.
Limited liability company (LLC). A limited liability com- pany (LLC) is an entity formed under state law by filing articles of organization. Generally, a single-member LLC is disregarded as an entity separate from its owner and reports its income and deductions on its owner's federal income tax return. An owner who is an individual may use Schedule C or C-EZ.
Husband and wife business. If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Do not use Schedule C or C-EZ. Instead, file Form 1065. For more information, see Publication 541.
Exception. If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U.S. possession, you can treat the business either as a sole proprietorship or a partnership. The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. A change in your reporting position will be treated as a conversion of the entity.
This publication does not cover the topics listed in the following table.
| IF you need information about: | THEN you should see: |
| Corporations | Publication 542 |
| Farming | Publication 225 |
| Fishermen (Capital Construction Fund) | Publication 595 |
| Partnerships | Publication 541 |
| Passive activities | Publication 925 |
| Recordkeeping | Publication 583 |
| S corporations | Instructions for Form 1120S (pdf) |
What you need to know.
The following table provides a list of questions you need to answer to help you meet your federal tax
obligations. After each question is the location where you will find
the related discussion.
What You Need To Know About Federal Taxes
(Note: The following is a list of questions you may need to answer so you can fill out your federal income tax return. Chapters are given to help you find the related discussion.)
| What must I know: | Where to find the answer: |
| What kinds of federal taxes do I have to pay? How do I pay them? | Filing and Paying Business Taxes |
| What forms must I file? | Filing and Paying Business Taxes |
| What must I do if I have employees? | Employment Taxes |
| Do I have to start my tax year in January? Or may I start it in any other month? | Accounting Periods |
| What method can I use to account for my income and expenses? | Accounting Methods |
| What kinds of business income do I have to report on my tax return? | Business Income |
| What kinds of business expenses can I deduct on my tax return? | Business Expenses |
| What kinds of expenses are not deductible as business expenses? | Expenses You Cannot Deduct |
| What happens if I have a business loss? Can I deduct it? | Figuring Net Profit or Loss |
| What must I do if I disposed of business property during the year? | See Dispositions of Business Property. |
| What are my rights as a taxpayer? | Your Rights as a Taxpayer |
| Where do I go if I need help with federal tax matters? | How To Get More Information |
Information courtesy of the Internal Revenue Service.
