The IRS states that if you work odd jobs for money, occasionally sell short stories or have both a day job and a side business, you are considered to be self-employed in the USA.

Even if you occasionally declare a loss, what matters is that you operate your firm with the aim of generating a profit.

Your firm is a sole proprietorship unless you choose to establish a corporation, an LLC, or another sort of business structure.

Schedule C is used to report self-employment income, which is subject to personal income tax.

The difference between a self-employed business owner and a hobbyist

If you run a trade or business for profit, you are a self-employed company owner. If you perform what you do more often for enjoyment than for profit, the IRS contends that you are a hobbyist.

You can decide if what you’re doing is a business or a hobby by using the IRS’s list of requirements.

Think about putting your homemade pies, muffins, and bread up for sale. If you advertise, set up shop at the local farmer’s market, or bargain with local merchants to sell your goods, you are operating a business.

If you only sometimes bake, only when someone asks you to, or only sell your goods at cost, you’re undoubtedly a hobbyist.

The 400-dollar cut-off

In the world of the self-employed business owner, $400 is a major benchmark.

Consider the scenario when you launch a home business while still living with your parents. If your net business income is less than $400 after deducting costs, according to the IRS Small Business Tax Guide, you might not need to file any taxes.

Having a business without forming a company

Without a formal business entity like a partnership, S corporation, or limited liability company, one can be self-employed.

The simplest form of business structure is a sole proprietorship, which has no organizational structure at all.

According to the Small Business Administration, there is no formal need for establishing a sole proprietorship that is equivalent to filing articles of incorporation (SBA). All that is needed is the decision to start a business.

If you’re currently making money singing in local bars, making jewelry at home, or doing the grocery shopping for housebound neighbors, you’re a sole proprietor unless you’ve chosen another legal structure.