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A change in your reporting position will be treated as a conversion of the entity. States with community property laws include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. possession, you can treat the business either as a sole proprietorship or a partnership. If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U.S. 541, Partnerships.Įxception-Community income. If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. For more information on determining whether you are an employee or independent contractor, see Pub. The earnings of a person who is working as an independent contractor are subject to self-employment tax. The general rule is that an individual is an independent contractor if the person paying for the work has the right to control or to direct only the result of the work and not how it will be done. However, whether they are independent contractors or employees depends on the facts in each case. Also, people who provide a service generally associated with the gig (or on-demand, sharing, or access) economy, such as ride-sharing, may be treated as independent contractors. People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. You are also a sole proprietor for income tax purposes if you are an individual and the sole member of a domestic LLC unless you elect to have the LLC treated as a corporation. A sole proprietor is someone who owns an unincorporated business by himself or herself. For example, if the single-member LLC is not engaged in farming and the owner is an individual, he or she may use Schedule C. Generally, for income tax purposes, a single-member LLC is disregarded as an entity separate from its owner and reports its income and deductions on its owner's federal income tax return. An LLC is an entity formed under state law by filing articles of organization. You do need to make ongoing efforts to further the interests of your business. You do not need to actually make a profit to be in a trade or business as long as you have a profit motive. The facts and circumstances of each case determine whether or not an activity is a trade or business. A trade or business is generally an activity carried on to make a profit.