Is There a Difference Between Being a Sole Proprietor and Being Self-Employed?

Sole proprietor means single-person business. If you are the only person in the business, you are, by definition, also self-employed. So, all sole proprietors are self-employed, however not all people who are self-employed are also sole proprietors.

image-png-May-18-2023-03-36-36-6338-PMYes, there is a difference between being a sole proprietor and being self-employed, although the terms are sometimes used interchangeably. Let's explore their meanings and distinctions:

  1. Sole Proprietorship: A sole proprietorship is a business structure where an individual operates a business on their own without any formal legal entity, such as a corporation or partnership. As a sole proprietor, you have complete control and ownership of the business and are personally responsible for its liabilities and debts. In other words, the business and the individual are considered one and the same from a legal standpoint. Many self-employed individuals choose the sole proprietorship structure due to its simplicity and ease of setup. A sole proprietorship is not a legal entity, and so the steps for filing income are the same as they are for those who freelance or are self-employed, as are the deductions you can take – office space, office supplies, client gifts, and other eligible business expenses. 

  2. Self-Employed: Being self-employed means that you work for yourself rather than being employed by an employer. It is a broader term that encompasses various business structures, including sole proprietorships. Self-employment can involve operating as a sole proprietor, a freelancer, an independent contractor, or even as a partner in a partnership—a business venture jointly managed by two or more parties, and therefore NOT be a sole proprietor. In essence, self-employment refers to the status of being your own boss and being responsible for generating your income through your business activities. Those who are self-employed, including sole proprietors, are expected to estimate, deduct, and pay quarterly estimated taxes to avoid penalties and fees at the end of the year. 

To summarize, being a sole proprietor refers to a specific legal structure where an individual owns and operates a business, while self-employment is a broader term that encompasses any situation where an individual works for themselves, regardless of the specific legal structure chosen. Many self-employed individuals operate as sole proprietors, but not all self-employed individuals necessarily have a sole proprietorship.

We at Peter Witts CPA PC are always here to help you navigate the intricacies of filing your small business taxes.  We provide expert guidance on any small business tax matter. 


I’m Kristin, the PWCPA PC Customer Success Specialist. For more information about this topic, or any other, you can always reach me through our customer ticketing system.