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- Both. Generally, "sole proprietor" is any self-employed individual who is not operating their business through an LLC, corporation or partnership. The question of "independent contractor" or "employee" is a separate matter, and is determined via a set of guidelines issued by IRS. Assuming that your working arrangement is that of an ind contractor, then you are an independent contractor operating as a sole proprietor.
- Someone familiar with PA biz-registration regulations will need to address this one.
- Yes, the contractor will issue a 1099 to you shortly after year's end. The act of issuing the 1099 has no effect on his tax situation, strictly speaking, in the sense that his payments to you are either a deductible expense on his return (almost surely the case, based on your description) or not, and issuing a 1099 doesn't change that fact. But there are potential penalties imposed on the contractor if he doesn't issue a 1099 in a situation where a 1099 was mandatory.
- Whether you owe tax for the year turns on the sum of all your income sources, and your various deductions, including personal itemized deductions. You could owe tax even if your sole prop business shows a loss if, e.g., you have significant amounts of income from other sources which more than offset your sole prop loss and any other personal deductions you might have. However, if your sole prop loss, along with your other deductions, exceeds the total of any other income you might have, then you won't have an income tax liability for that year.
Best of luck with the new business!