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Tax Trails - Self-Employment Income

Independent contractors may include individuals performing services as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, auctioneers, outside sales agents, etc., who are in an independent trade, business, or profession in which they offer their services to the general public. Independent contractors are not employees.

Generally, an individual isn't an independent contractor if the payer has the right to control or direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which the result is accomplished. For more information on determining whether you're an independent contractor or an employee, see Employee or Independent Contractor? in Chapter 2 of Publication 15-A, Employer's Supplemental Tax Guide.

If you carry on a trade or business as an independent contractor, you're usually self-employed and have self-employment income. A trade or business is generally an activity carried on for a livelihood or to make a profit and conducted with continuity and regularity. You don't have to carry on regular full-time business activities to be in a trade or business. Part-time work may be enough.

For information on determining whether you're carrying on a business or a hobby, see Not-for-Profit Activities, in Chapter 1 of Publication 535, Business Expenses.

An independent contractor must report their income and expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship). Schedule C-EZ (Form 1040), Net Profit From Business (Sole Proprietorship), may sometimes be used instead of Schedule C.

Because you have self-employment income, you'll usually owe self-employment tax. Figure your self-employment tax on Schedule SE (Form 1040), Self-Employment Tax.

If you earn or receive income during the year that's not subject to withholding or you don't have enough tax withheld, you may have to pay estimated tax. If you don't pay enough tax during the year through withholding or by making estimated tax payments, you may have to pay a penalty. See Tax Topic 306Penalty for Underpayment of Estimated Tax.

For more information about sole proprietorships, refer to Publication 334, Tax Guide for Small Business. For more information on estimated tax, refer to Chapter 2 of Publication 505, Tax Withholding and Estimated Tax, and Tax Trails - Do You Have to Pay Estimated Tax?


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Page Last Reviewed or Updated: 01-Jan-2017