What does self employment mean?

Answer 1

Being self-employed means operating a business that you own.

The term is usually used in a legal or technical context, and the exact definition is different depending upon the context in which it is being used. The most common definition of self employment in the USA is given by the Internal Revenue Service for tax reporting. If you have income that comes from owning and operating your own business (such as from selling a product or service), then you have to pay income tax on it. In the USA, you also have to pay self-employment tax, which is the FICA or Social Security tax and the Medicare tax.

Self-employment is also defined in the USA by IRS rules for employers and laws on what employment is. Many companies make contracts with their workers to pay commissions rather than wages or salaries. This can relieve them of many legal obligations including the obligation to supervise employees and keep them safe, to pay for legally mandated benefits such as insurance programs, and to pay FICA and Medicare taxes. They report the payments to the IRS using Form 1099, and so sometimes these contractors are called "1099" employees. An example is a salesperson who earns only commissions. However, these companies must be careful not to create conditions that make these people employees of the company (for example, by mandating their working time or place they can become obligated to treat them as employees.)

Owning a corporation or part of a corporation and being an employee is not considered self-employment. However, sometimes owning more than 5% of the corporation you work for is considered something you have to disclose when doing business and can easily be confused with self-employment. For example, some insurance companies consider it to be self employment. Advantages Being self-employed can have many benefits over being employed by somebody else. For example, you can work not only for a wage, but also to increase the value of your company, for which you will be paid when you sell it or make a withdrawal from your equity in the company. It can also mean more flexibility in choosing the types of work you do and scheduling when you work. The main advantage to being self-employed is that you take control of your own company. You can have greater stability of long-term income (rather than being subject to a discontinuation of your sole source of income, if business conditions change, such as a lost client, you still have your other business, theoretically). One of the biggest tax advantages is that income tax is not owed on money that is spent on the company and not withdrawn. That means that business expenses reduce the reportable income and income tax liability, and that the value of the business can grow over the person's lifetime until they make a withdrawal or sell part or all of the business, and they only pay income tax at that time, which means that tax does not drain the growth in value over those years, and the income tax rate may be lower if it is paid little-by-little in retirement or under other low-income conditions.)

Self-employed people also have many resources such as government agencies (Small Business Administration), and associations (National Association for the Self-employed), thru which they can get advice, loans, and health insurance.

Disadvantages One of the biggest drawbacks to full-time self-employment is that you may not have the ability to handle all aspects of business, such as cash flow and strategic planning. For example, when the income goes up and down, you may not have had the foresight to create liquid investments to pay yourself from during the downturns. This disadvantage can be alleviated with good preparation and planning. Self-employed people may also be employed by other companies, which can help stabilize your income while you are building a stable business.

Some drawbacks to being self-employed are kind of bureaucratic. When you apply for a loan or a lease, and in some cases health insurance, life insurance, or disability insurance, the application may ask if you are self-employed. In some cases it may make you ineligible for the thing you are applying for, or cause more stringent requirements. For a loan or a lease, you may have to show 1 or 2 years of tax returns to show stable income. For health insurance or life insurance or unemployment insurance there may be particular clauses that change the policy terms for self-employed people (like it may not cover you while you are working). For disability insurance it may make you ineligible or it may cause you to have to prove more facts in order to claim a benefit. For example, you may have to prove your past income and work, and prove that you can no longer work and earn income. Partial work and partial income may complicate your eligibility for the claim, whereas working for another company in a certain profession would make it simpler. Unemployment insurance may cover you while you are self-employed. However, your income must be reported and subtracted from the claims, and like with other forms of insurance, it complicates your claim and acceptance. Also, if you were not employed by another company within the past 18 months, then your self-employment probably does not qualify you for unemployment benefits (unless your company paid the premiums).

Foreign visitors to the USA (and many other countries) must have permission before they become employed, and this often includes self-employment. However, self-employment is involved in a lot of grey areas of law and procedure. For example, you may or may not be allowed to buy and sell real estate without it being considered self-employment.

Answer 2

Self-employment is simply working for yours self rather then working for some on or company.Its like being your own boss.

Answer 3

Tax breaks.