Elizabeth Ayoola

The listener sounds like a sole proprietor, which is a business that hasn't been registered as a legal entity and that's separate from the person who owns it.

And you might also hear that being called an incorporated proprietor.

business.

Sole proprietors likely need to file using Form 1040, and then they report their business income and calculate self-employment taxes using Schedules C and SE.

I know, very boring, but all has its purpose.

Many people fall into the sole proprietor category, such as independent contractors and gig workers.

All of this can get really confusing real fast, so it may be best to consult a tax professional before filing, like I do every year.

On that note, let's answer the listener's question on tax setup as a self-employed person.

This is so important.

I can't emphasize how important this is because you do not want to end up in the IRS's black book.

I sure did.

And again, I am not a tax professional, so please don't run if you have an LLC and you're trying to reduce your tax bill and copy me.

But I will say that it did cut my tax bill in half.

Self-employment taxes are high.

You're paying your part and what an employer would pay.

And currently, that's 15.3% on net earnings of $400 or more.

So that can get pretty pricey.

And that's basically Social Security and Medicare payments that, again, an employer would usually handle for you, but you're doing yourself.

Well, the long and short is my tax person told me to do it to save money.

That's right.