Which term best describes a sole proprietor or independent contractor whose income comes purely from professional practice and not from an employer-employee relationship?

• A. Compensation income
• B. Passive Income
• C. Business Income
• D. Self-Employed

Answer: (D)

Self-employed describes someone who runs their own professional practice and earns income directly from the services they provide, rather than receiving wages or a salary from an employer. This means you control your work, set your own hours, and bear the business risk and reward as you bill clients for your expertise. Soles proprietors and independent contractors fit this description because their income comes from their own practice, not from an employer-employee relationship.

Compensation income refers to wages or salaries from employment, which doesn’t apply here. Passive income comes from investments or activities you don’t actively manage. Business income can come from owning or running a company, but it doesn’t by itself specify that there’s no employer-employee relationship. The key idea is earning money from your own professional services without being an employee, which is why self-employed is the best fit.