Are You a Freelancer or a Small Business?

Not sure whether you should label yourself a freelancer or a small-business owner? The two concepts are very similar in many ways, but there are some distinct differences that should help you figure out what to put on your next batch of business cards.

Time is of the essence

The key to determining whether you’re a freelancer or a small-business owner is the way you spend your time. Daniel DiPiazza, writing for Entrepreneur, breaks down the difference with a simple question: If you were to remove yourself from the situation, would your business continue to operate? Entrepreneurs and small-business owners depend on other employees as well as automation and systems to generate revenue. Freelancers, on the other hand, depend entirely on their labor. If you’re a freelancer, not working essentially means not getting paid.

John Rampton writes for Inc. that you would qualify as a small-business owner if your time is often spent managing the work of others. He notes that this doesn’t mean you don’t do your own work — many small businesses require the input of owners to function — but you have a team and a system in place that would allow you to stand back if you need to focus your attention elsewhere.

Who do you work for?

Rampton also suggests that deciding whether you’re a freelancer or small-business owner comes down to whether you feel like you’re working for someone else. A freelancer, he notes, may become beholden to certain clients because that’s where they’re earning their money. This can create the feeling that you’re not working for yourself. While you’ll have clients as a small-business owner, Rampton suggests that you’ll feel more in charge of your time because you’ll be setting your schedule, deadlines and assigning tasks to accommodate those needs.

Kat Boogaard, writing for Intuit, expands on this by pointing out the difference when it comes to the service or products you offer. When you freelance, you use your skills to make a product that’s most likely catering to the particular needs of an employer. If you’re a small-business owner, the product or service that you offer is more likely to be based on what you choose to create. It would be a similar case if you’re an entrepreneur — your idea or solution is your own and the customer buys based on what you produce.

What is the difference at tax time?

Apart from self-qualification and how you present your business, the thrust for determining whether you freelance or run a small business likely comes down to how you’ll file your taxes. As Boogaard notes, there is a substantial gray area that exists around and between self-employment, freelancing, small-business ownership and entrepreneurship. Because these terms are in so many ways interchangeable, she suggests that the Internal Revenue Service won’t be terribly concerned about how you designate your enterprise.

However, you’ll want to make sure that you’re crossing all your t’s and dotting all your i’s no matter how you classify yourself. For this, consider acquiring the services of a dedicated tax professional. This will be especially helpful if you’re new to freelancing or business ownership and will ensure that you don’t wind up having to deal with an IRS-induced headache somewhere down the road.

The differences between being a freelancer and a small-business owner come down to what you do, who you do it for and how much help you have along the way. No matter the designation, presenting yourself with confidence to clients and customers will help you generate business and keep your enterprise moving forward.

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