By Financial Aspects of Being Self Employed
If you are considering starting up your own business then self-employed can be a great way of going about it. The definition of self-employed can be a little unclear though. Many people think that they are working for themselves when in reality it’s often just the case of being paid by the word and not receiving any kind of benefit from doing so. The law tends to treat self-employed persons as those who work for themselves exclusively and do not receive any remuneration from doing so.
Self-employed individuals can be individuals, partnerships or organisations. There are also different types of self-employed person. A sole proprietor is one who has only one business and no partners or other type of external agreement. A partnership consists of more than one self-employed person who has agreed to share in the business costs and risk. A business owner can be either a sole proprietor or a partnership.
An independent contractor is an individual who performs services for a company on a contractual basis. They are paid on a per-contract basis which means that if they complete a specific job for a period of time and complete that job in a specific way then they receive payment. This type of work differs from employee-based employment because the company is not obliged to hire them. If an independent contractor cannot perform as well as they were contracted to do they can quit for any reason. A self-employed person may be an independent contractor working as an employee but is entitled to call themselves self-employed.
What Are the Financial Aspects of Being Self Employed?
Income is one of the main ways self-employed differ from employee-based self-employment. There are a number of different methods of calculating income. The majority of self-employed individuals receive all of their income through one or more of these five categories: commissions, salary and tip pool income, investment income, and residual income. Commission income is derived from the activities of the business itself. Salary and tip pool income are derived from the performance of employees. Investment income is earned by individuals through investments made by the business.
Residual income is income that is not included in gross income. It is income that continues to flow from month to month and year to year, as long as the employee continues to work. A full or part-time business owner would consider self-employed during the period of time when they are bringing in more income and have less time to invest in their business. These include: commissions on products and services sold; rental income; and investment income such as investments, stocks, bonds, mutual funds, and dividends.
When you are self-employed, you are allowed a choice of tax treatment. Depending on your situation, you can choose whether or not to deduct your income taxes from your paycheck. You can also choose to have some or all of your income tax returns filed electronically. You are also allowed a choice of whether or not to itemize your deductions. As long as you meet the requirements of the Internal Revenue Code, you are not required to itemize.