2 minute read

How to avoid an identity crisis about the way you make a living

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In a Nutshell

If you’re not a traditional wage earner who gets a W-2 from their employer in January every year, you may be confused as to what you “are” when it comes to terms like self-employed, sole proprietor, independent contractor, gig worker, or small business owner. Let’s take a look at some important differences so you can map out your best path to lasting debt relief.

Written by Attorney Andrea Wimmer.  
Updated July 22, 2020


If you’re not a traditional wage earner who gets a W-2 from their employer in January every year, you may be confused as to what you “are” when it comes to terms like self-employed, sole proprietor, independent contractor, gig worker, or small business owner. Let’s take a look at some important differences so you can map out your best path to lasting debt relief. 

What does it mean to be self-employed

If you’re the one that makes the rules about how, when, and what you do to make a living, you can comfortably consider yourself self-employed. There are a number of pros and cons to being self-employed, but that’s another story. For purposes of reviewing your debt relief options, all you have to know is that being self-employed is more of an umbrella term, rather than a separate status. Gig workers, independent contractors, and business owners are all some version of self-employed. The real differences kick when we drill down just a little further on how being self-employed works for you. 

Independent Contractor v. Gig Worker

Independent contractors have one or more “clients” or “customers” they complete projects or assignments for in exchange for payment. They are responsible for their own expenses, insurance, and taxes and receive a 1099 from each one of their clients at the end of the year. Gig work, like driving for Uber, is a form of independent contractor work. So, if you’re in the gig economy and get a 1099 from your “employer,” you’re an independent contractor.

Sole proprietor v. small business owner

Another way to be self-employed is to be in business for yourself, essentially cutting out the middleman role played by companies like Uber, Grubhub and the like from the process. Folks who own their own business can do so either as a sole proprietor, or through a separate business entity.

How do I know if I’m a small proprietor rather than a small business owner?

If the only tax return you ever have to worry about filing is your own personal one, you’re probably a small proprietor. This is true even if you use a tradename or d/b/a for your business. If your accountant bugs you about K-1s, corporate tax returns or anything along those lines, you’re probably a small business owner. 

If it’s only you, this may seem like a distinction without a difference because you’re doing everything. But, the existence of a separate legal entity through which your business is conducted, makes you a small business owner rather than a sole proprietor. This in turn means you can either file a personal bankruptcy or put your business entity into bankruptcy. 

What if I have a LLC? 

If you have a LLC, you’re a small business owner.

So, should I file bankruptcy for my business? 

The answer to that question is a big ‘IT DEPENDS.’ Check out this article for some helpful information on how to make this decision. 

Conclusion

If you’re your own boss, your debt relief options may differ depending on where on this spectrum of being self-employed you fall. So, before you make any drastic decisions, make sure you understand what category you fall in and remember that speaking to an experienced  bankruptcy attorney can help you avoid unexpected consequences (even if you don’t end up hiring them). 



Written By:

Attorney Andrea Wimmer

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Andrea practiced exclusively as a bankruptcy attorney in consumer Chapter 7 and Chapter 13 cases for more than 10 years before joining Upsolve, first as a contributing writer and editor and ultimately joining the team full time in August 2019. While in private practice, Andrea ha... read more about Attorney Andrea Wimmer

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