Tax Preparation Guide for Artists: Understand the Difference Between Self-Employed and Small Business Tax Categories

 Artists make a decent amount of money in the U.S. They have multiple sources of income, such as from shows, exhibitions, stage performances, and personal invites. Like everyone else in the country, they have to register themselves as some sort of business identity and to pay taxes. And when it comes to taxes, there are two categories: salaried and self-employed.

Now, within the self-employed category, there are multiple sub-categories. A small business is considered self-employed in the eyes of the IRS, as is a freelancer and corporation owner. Then what is the difference between the categories of self-employed and small business? Let's find out in this tax preparation guide for artists.

Difference Between Self-employed and Small Business

When someone says they are self-employed, they are most likely referring to themselves as a freelancer, an individual artist, or a sole business owner. On the other hand, when someone says they run a small business, they are likely referring to a business that hires employees. Both are considered self-employed, but a small business also employs other people. With that comes the obligation of collecting income taxes, paying the employer share of self-employment taxes, offering sick and vacation pay, carrying workers' compensation insurance, and so on.

How to Register Your Self-employed Status with Your State

When you work as a self-employed person, you need to choose a business structure in order to register your business with the state. Then, you get a tax ID number and file for the appropriate licenses and permits. You can register your self-employed status in four primary ways:

●        Sole proprietorship

●        Partnership

●        LLC

●        Corporation

These are the most common types of business structures. If you are working as a single, self-employed individual, a sole proprietorship is the best option for you. On the other hand, if you are planning to hire employees or have a business partner, it is best to register as a partnership or LLC.

A sole proprietorship does not provide any protection of personal assets against legal claims and debts. In certain partnerships, you are protected against your partner's debts, but you do not have personal asset protection against claims. However, LLCs and corporations offer you personal asset protection.

You need to get an Employee Identification Number, EIN, if you hire employees. You can partner with income tax services for the self-employed to apply for business licenses, an EIN, and more.