If you ever find yourself stuck between Freelance vs. Self-employed, don’t freak out, because you are not alone.
It’s pretty much like when you decide whether a hot dog is either a sandwich or a meal—it’s both technically, but the context is different.
Though the terms “freelance” and “self-employed” are often used interchangeably, there is a thin line that draws the difference.
This fine line of difference will be elaborated in detail in this article, and we will also discuss the advantages and disadvantages of each.
What Does Self-Employed Mean?
Imagine being your own boss, setting your schedules as you dream, and no one expects anything from you except to be responsible for yourself. That is the life of a self-employed person, in layman’s terms. It is like being the CEO of a personal startup, with no board meetings, office politics, or anything.
According to the IRS, to be self-employed is to be engaged in any business, whether it is a main occupation or a side hustle. This points to everyone, from solopreneurs and freelancers to independent small business owners and independent contractors.
With a fixed boss and a regular paycheck, traditional employees are very different from self-employed individuals who are their masters. They decide their working hours and what projects to undertake, taking all the business responsibilities that go with it. From baking cookies to building websites, anything can be done by the self-employed.
Did you know that in the United States, alone, there are more than 32 million self-employed individuals? That’s a lot of people out there chasing their dreams!
What is Freelancing?
At the most, it can be related to a medieval knight with a Macbook, riding from one battle to another with a halfway decent line of the Internet.
This explains that freelancers are independent workers who get paid for a job well done, not according to time spent; they have more than one employer. There is an even greater difference between freelancers and other employees who report to some sort of boss and receive some kind of steady paycheck in their towering apartment or some similar tower.
Freelancers are quite the opposite: they are their bosses, working for themselves.
While the case of self-employment involves a wide category of people in society, freelancing is limited to people working on a contractual basis.
In other words, all freelance workers are independent workers, but not all independent workers are freelance workers. A self-employed person might have a store physically where he/she hires employees, whereas a freelancer works alone and perhaps from home.
The Great Tax Debate: Freelancers vs. Self-Employed
One of the oldest rivalries in taxation is that between freelancers and the self-employed. Both camps pay self-employment tax, but as one would expect from two camps in a great battle, there are some subtle differences in reporting and calculating said taxes.
1099s vs. W-2s: A Superhero Showdown
There are 1099s—much like the superhero cape—filled out by self-employed business owners and freelancers. But for almost every self-employed business owner, Schedule C is, in fact, the equivalent of a secret weapon in filing business income and expenses.
Deductions: The Ultimate Power-Up
That’s right, both freelancers and the self-employed might be able to deduct business expenses from their income, saving on taxes and playing the hero. But, with the type of deductions able to be taken, it’s largely going to depend on the business structure or the specifics of what they do.
The Whac-A-Mole: Another Game to Play Forever
For freelancers and the self-employed, dealing with taxes resembles a perpetual playing of financial Whac-A-Mole. You need to track income and expenses, estimate taxes, and save for retirement and other goals—on an ongoing basis. It’s a daily mental workout.
Key Differences in Tax Treatment:
Although both freelancers and self-employed people pay self-employment tax, the two are crucially different in terms of how their taxes get calculated and reported:
- 1099s vs W-2s: Freelancers mostly get 1099s, while self-employed individuals get both 1099s and W-2s in case of owing businesses.
- Schedule C: A self-employed business person needs to file Schedule C to itemize business income against business expenses. Freelancers might need to file Schedule C, depending upon the form of their business.
- Deductions: Both are allowed to deduct the cost of doing business, though what these precisely are will differ depending on the nature and structure of the work.
Freelance vs. Self-Employed: Which One Is Right for You?
Freelancing is just one type of work among the many opportunities for self-employment and the choice is highly subjective.
If you are fond of flexibility, do not want to be tied to one company or a single project for a long time, and are quite sure that you can multitask between different clients, freelancing is the way to go.
On the other hand, if you have a business idea that you are passionate about, if you want to create a brand, and if you have the zeal and energy to run a business then traditional self-employment is the option for you.
Freelancing is like dating – it can be enjoyable, it can include different tasks, and sometimes you don’t know what to expect. You might have several clients (or dates) at once and all the clients offer something different to the others.
Traditional self-employment, however, can be said to be similar to marriage in that it is a long-term business venture. It takes time, entails more responsibilities and yet is so fulfilling if the work is done to serve a long-term goal.
Conclusion: The Choice Is Yours
Whether you’re a freelancer or self-employed, you’re part of a growing wave of independent workers reshaping the American workforce. Each path offers its unique blend of challenges and rewards, and the best choice for you depends on your personal goals and preferences.
So, are you a tomato or a tomato? Freelance or self-employed? In the end, it’s all about how you slice it.
