Independent contractor vs sole proprietor: What’s the difference?

If you’re self-employed or just starting out as a freelancer or service provider, you’ve probably heard the terms independent contractor and sole proprietor used interchangeably. But are they really the same thing?

Understanding the difference between an independent contractor and a sole proprietor can help you navigate taxes, legal obligations, and business growth more confidently. In this article, Remote explains how each term applies, where they overlap, and what it means for your next steps as a self-employed professional.

What is an independent contractor?

An independent contractor is a self-employed individual who provides services to clients or businesses based on a contractual agreement, rather than as an employee. Independent contractors control how and when they work, use their own tools and resources, and are responsible for managing their own taxes, benefits, and legal obligations.

In the United States, independent contractors usually receive Form 1099-NEC from each client who pays them $600 or more in a year. They are required to file self-employment taxes, track their income and expenses, and handle their own insurance, retirement planning, and compliance.

What is a sole proprietor?

A sole proprietor is an individual who owns and operates a business without forming a separate legal entity, such as an LLC or corporation. This is the default business structure for anyone who starts earning income from their own products or services.

A sole proprietorship is the simplest way to run a one-person business. If you haven’t formed a separate legal entity, you’re automatically operating as a sole proprietor, even if you call yourself a freelancer, consultant, or contractor.

You are considered a sole proprietor if you: 

• Sell goods or services on your own (under your legal name or a Doing Business As)
• Have not registered your business as an LLC, S corp, or corporation
• Report business income and expenses on Schedule C of your personal tax return (in the US)
  
  

Sole proprietors are personally liable for any business debts or legal issues, since there’s no legal separation between the individual and the business. However, this structure is easy to set up and requires minimal paperwork.

Key differences between an independent contractor and a sole proprietor

While many self-employed individuals are both independent contractors and sole proprietors, these terms describe two different aspects of self-employment:

• Independent contractor refers to your worker classification. It’s how you engage with clients and how you’re treated under tax and labor laws.
  
  
• Sole proprietor refers to your business structure. It’s the legal and financial framework you use to operate your business.
  
  

Here’s a side-by-side comparison to highlight the key differences:

Can you be both a sole proprietor and an independent contractor?

Yes. In fact, many independent contractors are also sole proprietors by default.

If you’re self-employed, haven’t registered a formal business entity, and provide services under your own name or a DBA (Doing Business As), then you are:

• An independent contractor in the eyes of clients, tax authorities, and labor regulators
• A sole proprietor in terms of your legal business structure
  
  

Later, you may choose to register your business as an LLC or S corporation to gain liability protection, enhance credibility, or prepare for growth. Until then, operating as a sole proprietor and independent contractor is a standard setup for freelancers and solopreneurs.

Independent contractor vs sole proprietor: Which one should you call yourself?

It depends on the context in which you're describing your work.

Use independent contractor when referring to your working relationship with clients or organizations, especially for legal, tax, or compliance purposes. For example, call yourself an independent contractor when filling out a Form W-9, signing a service agreement, or describing your role in a contract.

Use sole proprietor when referring to your business structure, such as when setting up business operations. For example, you can call yourself a sole proprietor when opening a business bank account, applying for a business license, or filing your tax return.

Tax and legal responsibilities

Whether you identify as an independent contractor, a sole proprietor, or both, you have important tax and legal obligations as a self-employed professional.

Responsibilities for both independent contractors and sole proprietors

• Track income and expenses throughout the year
• Pay self-employment taxes (in the US, this includes Social Security and Medicare)
  File an annual tax return using IRS Form 1040 and Schedule C
• Make quarterly estimated tax payments if you expect to owe $1,000 or more
• Comply with local laws on business licenses, permits, or certifications
  
  

Additional responsibilities for sole proprietors:

• Register a business name (Doing Business As or fictitious name) if you're operating under something other than your legal name
• Apply for a local business license or tax registration, depending on your city, county, or state regulations
• (Optional) Maintain separate business and personal bank accounts to simplify tax filing and improve financial organization
  
  

Take control of your business with Remote

Independent contractor refers to your working relationship (you’re self-employed and not an employee). Sole proprietor refers to your business structure (you operate as an individual, not as a separate legal entity).

Often, you’re both and that’s perfectly fine. What matters most is understanding your responsibilities, staying compliant, and preparing to scale your business as it grows.  

Remote Contractor Management can help you:

• Get paid faster in your local currency
• Create localized contracts with your clients
• Track invoices, payments, and expenses in one place
• Stay compliant with local tax and labor laws
• Build a trusted, professional brand with global clients
  
  

Whether you're providing services locally or scaling internationally, Remote makes it easier to manage the business side of self-employment — so you can focus on what you do best.

Learn more about Remote Contractor Management or sign up for Remote Freelancer Hub today.