Definition:
Someone who is self employed is the owner of a business, an individual who earns a living by working for himself/herself and not as an employee of someone else. An individual who is self employed earns a living by running one of the following types of businesses:
A self employed individual must pay self-employment taxes on the profits of the business each year. Losses from self employment may be used to offset income to the individual from other sources.
Self employed income/losses are considered pass-through, since they are passed through to the individual owner/owners on their personal income tax returns.
Examples:
An individual who is self employed must pay self-employment taxes (Social Security and Medicare), while an employee of a company must pay half of these taxes and the employer pays the other half.
Self employment is sometimes confused with sole proprietorship, but someone who is a partner or a member of an LLC is also considered self employed.
