Question

A self-employed individual that carries on a trade or business as a sole proprietor or an independent contractor reports his business income and expenses on which schedule?

Answer 1

Self-employed individuals report income and expenses on Schedule C and pay federal income tax and self-employment tax. The Social Security tax within the self-employment tax is regressive because it does not increase proportionally with higher incomes.

Step-by-step explanation:

A self-employed individual who operates as a sole proprietor or as an independent contractor reports business income and expenses on Schedule C (Form 1040), Profit or Loss from Business. Sole proprietorships are often organized as unincorporated businesses where the business and owner are not legally separate.

Hence, the individual is responsible for all liabilities and debts as well as entitled to all profits. Taxes paid by self-employed individuals include federal income tax and self-employment tax, which encompasses both the employer and employee portions of Social Security and Medicare taxes.

The Social Security tax is set at 6.2% for employees on income earned below a certain threshold which is subject to annual adjustments, but for self-employed individuals, this rate effectively doubles, as they must cover both the employer and employee portions. This tax is considered regressive, as it is capped at a certain income level and does not progress with higher incomes.