Self-employed, Sole-proprietor and Single Member LLC

If you have a small business like a sole proprietorship or an independent contractor, or you operate as Single Member LLC, you generally would consider yourself to be a self-employed.  For tax purposes, you must file IRS Schedule C, Profit or Loss From Business or Schedule C-EZ, Net Profit From Business with your individual income tax return Form 1040.  Here are some important facts for you to know:

If you are self-employed, your net earnings (after business deductions) are subject to Self-employment Tax. This tax consist of Social Security tax and Medicare tax.  Currently, for 2010, you would pay 15.3% of SE tax (subject to Social Security maximum cap).

Half of the SE Tax can be deducted above the line, meaning, this deduction reduces your AGI (Adjusted Gross Income)

Because you are a self-employed, you generally have to make estimated quarterly tax payments on the 4th, 6th, 9th, and 12th month of the calendar year to the IRS and your State government (if applicable).  If you don’t make quarterly payments as required, you may be subject to tax penalties.

You are allowed to deduct ordinary and necessary business expenses.  This is the costs of operating and running your business.

Links:
Publication 334, Tax Guide for Small Business
Publication 535, Business Expenses
Publication 505, Tax Withholding and Estimated Tax
Form 1040-ES Payment Voucher