IRS Publication 334 — Tax Guide for Small Business (Schedule C)

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. Limited liability company (LLC). An LLC is an entity formed under state law by filing articles of organization. Generally, for income tax purposes, 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. For example, if the single -member LLC is not engaged in farming and the owner is an individual, they may use Schedule C (Form 1040).

Sole proprietor. A sole proprietor is someone who owns an unincorporated business by themselves. You are also a sole proprietor for income tax purposes if you are an individual and the sole member of a domestic LLC unless you elect to have the LLC treated as a corporation. Independent contractor. People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, 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 person paying for the work 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 employee or independent contractor, see Pub. 15 -A, Employer’s Supplemental Tax Guide.