What Qualifies as Self-Employment Income?
Self-employment income refers to earnings derived from activities where an individual operates their own business, rather than being an employee of someone else's company. Understanding what constitutes self-employment income is essential for accurate reporting and taxation.
Types of Self-Employment Income
- Business Profits: Income earned from selling goods or providing services in your own business.
- Freelance Earnings: Payments received for freelance work, including consulting services, writing, graphic design, and more.
- Commission Income: Earnings from sales made as an independent contractor or for providing services on a commission basis.
- Rental Income: Income generated from renting property, provided the rental activity is substantial enough to qualify as a business.
What Doesn’t Qualify?
Not all income is considered self-employment income. For instance:
- Wages or Salaries: Income received as an employee is not self-employment income.
- Investment Income: Earnings from stocks, bonds, or other investments do not count as self-employment income.
Importance of Accurate Reporting
Accurate classification and reporting of self-employment income are crucial, as they affect tax obligations, including self-employment tax. It's advisable to maintain thorough records to substantiate income earned from self-employment activities.