 to have them give the person who cut their hair a 10.99 form because I don't get a deduction for getting my hair cut, right? Does that mean that the person that got the money doesn't have to record income? No, no, it doesn't. You still have a sole proprietorship and you still should be reporting the income for tax purposes, but it does mean that you're less likely to have that informational form telling you, such as a W-2 form or a 10.99 form telling you that you have to record income. So I think that's where a lot of people get confused when they go from a W-2 situation to a sole proprietor situation. You can also imagine situations where people go from a W-2 situation to also picking up gig work. So now they're doing gig work on the side and they might think this is just a side thing. It's not actually my job. I still have a W-2 job, but obviously from the IRS's perspective, they're going to want some of that gig money as well. They see that as a business and they're going to want, you know, some of that money and you can understand that. The other thing that gets kind of fuzzy sometimes is when you have a hobby. So a classic case was when they had horse racing. People like to buy horses, right, and have them have horse racing, but it was pretty clear that they were losing money all the time on these horse races and it was more of a hobby. It was a very expensive hobby, but they were losing money. So if they reported a Schedule C business, they actually had losses and the IRS wants a piece of your earnings. They don't want a piece of your losses. They want you to make money and then the IRS takes some of it. They don't want to take on the risk of a loss and then compensate you for the losses. So if you have a business with a loss, the IRS is going to be skeptical that it's not a business, but a hobby. And so therefore there actually may restrict you from recording it as business income, but rather hobby income so that they possibly can still get a bit of the income without, without you reporting a loss. Now, if you do have a loss and it's a legitimate business, don't be afraid of reporting a loss. If it's a legitimate business loss, we'll get into that later. But the hobby versus a business is another area where people often get confused. Also just note that the IRS tries to make a delineated line between someone being an employee and someone being a contractor or a non-employee situation. So that's another gray area that can happen. Now, there's not always a set line. You can try to come up with some with ideas of when someone is an employee versus when they're a contractor, but you may have some situations where you can decide whether to be an employee or a contractor because you're kind of, you're not, you're not in one category or the other specifically. And you might be in a situation where you want to ask yourself, do I want to be a sole proprietor or do I want to be a W2 employee and situate yourself in one of those two areas? There's pros and cons to either one. When you're hiring other people, you have the same question. Do I want to hire them as an employee? Do I want to hire them as a contractor? Do I want to take someone on as an equity partner kind of situation? So we'll dive into some of those more questions in future presentations. But caution, you do not have to carry on regular full-time business activities to be self-employed. In other words, you can have a side job. You could just be doing some gig work. And yes, the IRS wants their share of your money, whether you get a $10.99 or not. Having a part-time business in addition to your regular job or business may be self-employment. So trade or business. A trader business is generally an activity carried on to make a profit. So this often comes up with that fuzzy question of, is it a hobby versus is it a business? If you're in business to make a profit, then it's generally going to be a business. If you get a little bit of money from a hobby, but you have way more expenses than income, you can see what the IRS is going to do. They're going to say, I don't want you to record it as a business because you're going to have a loss, and you're going to write the loss off against other income. No, we want you to record that as a hobby so that any income you get, we want a piece of it, but we don't want to take on your losses. So the facts and circumstances of each case determine whether or not an activity is a trade or business. So you do not need to actually make a profit or be in a trade or business as long as you have a profit motive. So that's the other side of the coin. Remember that if you are in business for profit, it's likely that you do have a loss maybe for the first couple of years. That's what often happens for small businesses and a lot of small businesses go under. That's just the way it works because that's entrepreneurship, that's risk taking and whatnot. So the fact that you have a loss, if you have a profit goal, don't be afraid of reporting a loss. But if it's a hobby, then it's not a for-profit business. Okay, so you do need to make ongoing efforts to further the interests of your business. So if the IRS was to audit you or something like that, you'd have to prove to them, hey, look, yeah, I was in it for business here. I may not, don't be embarrassed that it failed. A lot of businesses fail, and that's fine. But I wrote it off legitimately here because I was trying to make money on it. So an LLC is an entity formed under state law by filing articles of organization. Now, whenever we have a sole proprietorship business, you've got different kinds of structural entities that then could come up, which could be supportive or helpful for multiple reasons, including possibly liability protection, for example. It used to be that you had the corporation, which was a separate legal entity. And then they came up with all these kind of flow through entities, like a limited liability company, which if it was a single member, then it could be still treated as a Schedule C in some cases possibly, and then like a partnership and an S corporation and whatnot. So generally the income tax purpose is a, so here we have a single member LLC is disregarded as an entity separate from its owner and reports its income and deductions on its own federal income tax return. So you've got to be kind of careful with those limited liability companies because the laws may be different from state to state. And if you're a single member LLC, you're trying to get that liability protection oftentimes. But then there's questions as to whether how much liability protection you're getting from a single member LLC, but you might still be able to report it as a Schedule C for, which will make it easy for tax reporting purposes in essence. So for example, if a single member LLC is not engaged in forming and the owner of an entity, they may use Schedule C. Okay, so we have a sole proprietor. A sole proprietor is someone who owns an unincorporated business by themselves. So in other words, if it was incorporated, then it would be a corporation. It would be a separate legal entity. Now there's different kinds of corporations. You could have a sole proprietor. I mean, I'm sorry, you can have a C corporation versus an S corporation. But the idea is that it would be like a separate legal entity. Now, if you had one person that just started doing business, you started up a hot dog stand or something like that. Obviously you didn't incorporate it. You didn't do the paperwork to make it a separate legal entity. You started making money and the IRS wants a piece of your hot dog stand. That's all it takes from the IRS perspective. You can get into other things. You can say, well, don't I need a business license? Don't I need this and that? Yeah, you probably do. Do I need to get a check to make sure I don't have moldy hot dogs in my state or something like that? Because I'm selling food or something. Yeah, you got to deal with all those codes as well. But from the income tax perspective, even if you were selling drugs or something, which is illegal, the IRS still wants their piece if you were to sell the drugs. So from the federal tax perspective, and if you just start doing business, then you're going to be a sole proprietor. Now, the tricky thing is that if a partnership just started doing business, then they would technically be a partnership. So if two people started the hot dog stand, it's a partnership. The problem with a partnership is that it becomes more difficult to kind of determine who gets allocated the income. Normally you would have a separate return, a partnership income tax return that would then flow into the individual tax returns. So be careful if you're a sole proprietorship and you want to grow, do you want to take on partners or do you want to hire contractors or employees? If you take on partners, then you do lose some of your control over the business and the partner's decisions are decisions that you could be held liable for. So possibly in a partnership work. So in any case, you are also a sole proprietor for income tax purpose if you are an individual and the sole member of a domestic LLC unless you elect to have the LLC treated as a corporation. So another like single member LLC situation, independent contractor, people such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers and auctioneers who are in an independent trade business or profession in which they offer their services to the general public or generally independent contractors. However