Many people who are self-employed do not have to deal with employer benefits and W-4 withholding. They still have a whole host of other tax issues to consider, though, and should learn how to file as a self-employed taxpayer.
The most common mistake self-employed individuals and independent contractors make is not treating what they earn as income, said Scott Goble, a certified public accountant and managing partner of Sound Accounting, based in Chickamauga, Ga.
"When you're self-employed, you are, in fact, operating a small business," he said. "A self-employed individual can deduct many expenses as a small business owner that aren't necessarily available to employed individuals."
Deductible business-related expenses include: home office supplies, the use of your vehicle for business travel, personal computers and software, meals and entertainment, accounting and legal fees, postage and education and professional association dues.
You don't claim the totality of your business income on your tax Form 1040 when you run a small business. Instead, you enter it on Schedule C, which allows you to deduct business expenses from that total. But in exchange for this perk, you must pay self-employment taxes.
"Self-employed individuals are subject to a tax equal to 15.3 percent of their net income from business," said Goble. They're responsible for paying all Social Security and Medicare taxes — 12.4 percent for Social Security and 2.9 percent for Medicare. Employers pay half this amount for people who work as employees.