Tax season is right around the corner and I’m sure you’ve already started to see the commercials for companies such as H&R Block and Jackson Hewitt. For those of us who either have a home business or do freelance work, taxes involve a bit more work (and money) than others.

If you are self-employed and making more than $400 a year you are most likely subject to self-employment tax. When you are working for someone else and considered an employee you pay social security and Medicare taxes but, your employer also pays half on your behalf. Being self-employed you do not have an employer to “split” the taxes with and therefore are required to pay both on your own.  “The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance)” (http://www.irs.gov/businesses/small/article/0,,id=98846,00.html).

The other difference (when it comes to taxes) between being an employee and independent contractor is the number of times you pay taxes. For usual employees you worry about taxes once a year and either receive a refund or may owe the government some taxes. Self-employed individuals must pay estimated taxes quarterly:

Those who do not pay by the scheduled due dates will be subject to penalties. For more information on estimated payments visit the IRS’s website.

It is not all bad news though! As a self-employed individual you are able to claim a number of deductions for working out of your home. This can include part of your rent/mortgage for your office space, supplies, insurance premiums, and many more. Check with your tax professional on your allowable tax deductions. Taxes are just one more of the pros and cons to working at home. While, you may owe more taxes and have more responsibility on keeping good records, you are fortunate to have additional deductions. So while, paying estimated and self-employment taxes can cause a headache, hopefully a good refund in the end will be all the remedy you needJ Some additional helpful resources for the self-employed: A Dozen Deductions for Your Small Business 10 Tax Tips for the Self-Employed Paying Social Security and Medicare Taxes Overlooked Tax Deductions