From [the nest], Fraser Sherman writes about the difference between an independent contractor and a business owner. Fraser also describes the options for your business structure. He writes:
Every independent contractor is a business owner. You run a business even if you are your only employee and you don’t have a company name. There are significant differences, however, between a business that’s just you as an independent contractor and running a company with employees and a registered name.
Independent Contractor
If you’re an employee, your boss tells you what to do and when and how to do it. The company also decides financial details, such as how you get paid and whether your expenses are reimbursed. If you’re an independent contractor, your client tells you what he wants done but you decide, within limits, how to accomplish the task and you can negotiate the financial terms. The IRS says there’s no single factor that identifies an independent contractor — it’s determined by adding up all the details of your relationship with your clients.
Your Business
If you’re a one-person shop doing business under your own name — Jenny Smith, Plumber, for instance — you own a business as a sole proprietorship. All the profits from your business are personal income, reported using IRS Schedule C and a 1040 form. Your Social Security number is the tax identification number for your business. If you us a business name such as Amazing Plumbing, you’re still an independent contractor. You will, however, have to take added steps such as registering your business name with your county.
Business Structure
As an independent contractor, you can also form a limited liability company or a corporation instead of a sole proprietorship. If you go into business with someone else, a partnership is another option. If you incorporate, legally your company is now the independent contractor, even if you own the business. When clients hire your services, what they’re really doing is hiring your corporation, which sends you out to do the job. In a sense, you’ve become you’re own employee.
Read the full story at The Difference Between an Independent Contractor & a Business Owner
