The Different Ways To be Self-Employed

If you’re not a traditional wage earner who gets a W-2 from their employer in January every year, you may be confused about whether you’re a sole proprietor, independent contractor, gig worker, or a small business owner. Let’s take a look at some important differences in these types of self-employment so you can map out your best path to lasting debt relief. 

What Does It Mean To Be Self-Employed?

If you’re the one who makes the rules about how, when, and what you do to make a living, you can comfortably consider yourself self-employed. There are a number of pros and cons to being self-employed, but that’s another story. For purposes of reviewing your debt relief options, all you have to know is that being self-employed is more of an umbrella term, rather than a specific status. 

Gig workers, independent contractors, and business owners are all some version of self-employed. The real differences kick in when we drill down further on how being self-employed works for you. 

Independent Contractor vs. Gig Worker

Independent contractors have one or more clients or customers they complete projects or assignments for in exchange for payment. They’re responsible for their own expenses, insurance, and taxes and receive a 1099 from each one of their clients at the end of the year. Gig work, like driving for Uber, is a form of independent contractor work. So, if you’re in the gig economy and get a 1099 from your “employer,” you’re an independent contractor.  A gig worker can be an independent contractor.

Sole Proprietor vs. Small Business Owner

Another way to be self-employed is to be in business for yourself, essentially cutting out the  extra-agent role played by companies like Uber from the process. Folks who own their own business can do so either as a sole proprietor or through a separate business entity. 

How do I know if I’m a small proprietor rather than a small business owner?

If the only tax return you ever have to worry about filing is your own personal one, you’re probably a sole proprietor. A sole proprietor’s business is not a separate business entity. This is true even if you use a trade name or DBA for your business. If your accountant bugs you about K-1s, corporate tax returns, or anything along those lines, you’re probably a small business owner. 

If you’re the only one in your business, this may seem not seem like an important distinction. But when it comes to bankruptcy, it matters if your business is its own legal entity and you’re a small business owner rather than a sole proprietor. As a business owner, you can either file a personal bankruptcy or put your business entity into bankruptcy. 

What if I have an LLC? 

If you have an LLC, you’re a small business owner.

So, should I file bankruptcy for my business? 

The answer to that question is “it depends.” Check out this article for some helpful information about how to make this decision.

The bottom line is, if you’re your own boss, your debt relief options may differ depending on where on the self-employment spectrum you fall. Before you make any drastic decisions, make sure you understand your employment status, and remember that speaking to an experienced bankruptcy attorney (even if you don’t end up hiring them) can help you avoid unexpected consequences.