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The IRS states that if you work odd jobs for money, occasionally sell short stories or have both a day job and a side business, you are considered to be self-employed in the USA.
Even if you occasionally declare a loss, what matters is that you operate your firm with the aim of generating a profit.
Unless you decide to set up a corporation, an LLC or another type of business structure, your operation is a sole proprietorship.
Self-employment income is reported on Schedule C, and the earnings are taxed as personal income.
The difference between a self-employed business owner and a hobbyist
You are a self-employed business owner if you operate a trade or business for profit. The IRS argues that you are a hobbyist if you do what you do for fun more often than for profit.
You can use the IRS's list of criteria to determine whether what you're doing is a business or a hobby.
Consider selling bread, muffins, and pies that you make at home. You are running a business if you advertise, set up shop at the neighborhood farmer's market or negotiate with local retailers to sell your products.
You're probably a hobbyist if you only bake occasionally or only when someone asks you to or if you only sell your products at cost.
The 400-dollar cut-off
A significant benchmark in the world of the self-employed business owner is 400 dollars.
Let's say, for instance, that you start a home company while still residing with your parents. The IRS Small Business Tax Guide states that you might not need to file any taxes if your net business income is less than 400 dollars after deducting costs.
Having a business without forming a company
Being self-employed is possible without having a formal business entity like a partnership, S corporation or limited liability company.
A sole proprietorship is the most basic type of business structure, and these don't have any kind of structure at all.
There is no formal prerequisite for starting a sole proprietorship that is equal to submitting articles of incorporation, according to the Small Business Administration (SBA). The decision to launch a business is all that is necessary.
Unless you've chosen another legal form, if you're currently producing money singing in local clubs, manufacturing jewelry at home, or doing the grocery shopping for housebound neighbors, you're a sole proprietor.
