4.2.2  Ways to Identify

4.2.2.1 By Organization

4.2.2.2 By IRS Tax Forms

4.2.2.3 Employee Status

Identify a farm or other business according to the following criteria.

4.2.2.1 By Organization

A farm or other business is organized in 1 of 3 ways:
 

1. A sole proprietorship, which is an unincorporated business owned by one person.  
    

2. A partnership, which exists when 2 or more persons associate to conduct business.  Each person contributes money, property, labor, or skills, and expects to share in the profits and losses.  Partnerships are unincorporated.
    

3. A corporation is a legal entity authorized by a state to operate under the rules of the entity's charter.  There may be one or more owners.  A corporation differs from the other forms because a corporation:  

1. 1. Is taxed as a separate entity rather than the owners being taxed as individuals, and
       

   2. Provides only limited liability.  Each owners' loss is limited to their investment in the corporation while the owners of unincorporated business is also personally liable.  

4.2.2.2 By IRS Tax Forms

A self-employed person who earns more than $400 net income Income is anything you receive in cash or in kind that you can use to meet your needs for food, clothing, and shelter. must file an end-of-year return.  A person who will owe more than $400 in taxes at the end of the year must file quarterly estimates.  

IRS tax forms for reporting self-employment income are listed below.

1. Form 1065 - Partnership

2. Form 1120 - Corporation

3. Form 1120S - S Corporation

4. Form 4562 - Depreciation & Amortization

5. Form 1040 - Sole Proprietorship
    

6. 1. Schedule C ( Form 1040 ) - Business (non-farm)

   2. Schedule E ( Form 1040 ) - Rental and Royalty

   3. Schedule F ( Form 1040 ) - Farm Income

   4. Schedule SE ( Form 1040 ) -  Social Security Self-Employment

4.2.2.3 Employee Status

A person is an employee if s/he is under the direct "wield and control" of an employer. The employer has the right to control the method and result of the employee's service.  A self-employed person earns income directly from his/her own business, and:    

1. Does not have federal income tax and FICA payments withheld from a paycheck.
   
   Note: A baby sitter who works in someone else's home is considered an employee of that household, even if the individual employing him/her does not withhold taxes or FICA.
    

2. Does not complete a W-4 for an employer.

3. Is not covered by employer liability insurance or worker's compensation.

4. Is responsible for his/her own work schedule.

Examples of self-employment are:

1. Businesses that receive income regularly ( for example, daily, weekly or monthly):

1. 1. Merchant.

   2. Small business.

   3. Commercial boarding house owner or operator.

   4. Owner of rental property.

2. Service businesses that receive income frequently, and possibly, sporadically:
    

3. 1. Craft persons.

   2. Repair persons.

   3. Franchise holders.

   4. Subcontractors.

   5. Sellers of blood and plasma.

   6. Commission sales persons ( such as door-to-door delivery ).
       

3. Businesses that receive income seasonally:
    

4. 1. Summer or tourist oriented business.

   2. Seasonal farmers (custom machine operators).

   3. Migrant farm worker crew leaders.

   4. Fishers, trappers, or hunters.

   5. Roofers.

4. Farming, including income from cultivating the soil, or raising or harvesting any agricultural commodities.  It may be earned from full-time, part-time or hobby farming.

This page last updated in Release Number: 06-02

Release Date: 07-14-06

Effective Date: 07-14-06