So you’ve struck out on your own, no longer to be controlled by a boss or anyone else telling you where to be and when. Sounds amazing, right? It sure can be if you learn how to maneuver through the pitfalls of suddenly being considered a small business owner. It comes with many perks but also many responsibilities. Being your own boss and making your own flexible schedule are certainly pluses, but don’t forget some of the drawbacks, such as no benefits at all. That means no health insurance, no retirement plan with company matches, no steady paycheck, and—most importantly and never to be forgotten—TAXES.
For federal tax purposes, when you are an independent contractor, the business you are providing services to may be required to give you Form 1099-MISC, Miscellaneous Income, to report what it has paid you.
If you receive a Form 1099-MISC, you are responsible for paying your own income tax and self-employment tax (Self Employment Contributions Act—SECA). The business paying you does not withhold taxes from your pay. You may even need to make estimated tax payments during the year to cover your tax owed.
You may deduct business expenses on Schedule C of your income tax return.