Considerations

• Self-employed workers do not receive an IRS Form W-2 at the end of the year because they are not employees, even if they work for only one company. The company does not take taxes out of the payment to a self-employed worker. If you are self-employed, you should receive an IRS Form 1099-MISC from each company with income totals for the year. You may not receive a Form 1099-MISC if the total was less than $600 for the entire year.
  
  

Schedule C (1040)

• Use Schedule C for your business if you are a sole proprietor or if you own the business and it is not incorporated. This form allows submission of the gross income figure, with deductions for expenses you incur in running a business as a self-employed person. Once you deduct expenses, your net income figure is on Line 31, or if you had a loss, the figure is on Line 32.
  
  

Form 1040

• File an IRS Form 1040 for individual income taxes for all of your income for the calendar year. Enter the net income from self-employment on Line 31 of the Schedule C and onto Line 12 of the Form 1040. Add this figure to your other income and continue your Form 1040 as you would if you were an employee. Your tax rate for income taxes will be the same as if you were an employee; your tax rate for Social Security and Medicare will not.
  
  

Schedule SE

• A profit in self-employment requires completion of Schedule SE for payment of Social Security and Medicare taxes. The tax rate in 2010 for Social Security is 6.2 percent, and the tax rate for Medicare is 1.45. For Social Security, there is a cap on taxation at $106,800. If Line 31 of your Schedule C shows more net income than that amount, calculate Social Security tax only on that amount. You are both the employer and the employee, so your actual tax rate is doubled -- 12.4 percent for Social Security and 2.9 percent for Medicare. Medicare contributions have no cap, so calculate your Medicare tax at 2.9 percent on the entire total from Line 31 of Schedule C.
  
  

Tax Breaks

• On the Form 1040, Line 22 shows your total income. As a self-employed person who files Schedule SE, the IRS allows you to take 50 percent of the self-employment tax off your total income. Put the 50 percent figure from Schedule SE on Line 27 of your Form 1040 and subtract it from your total income along with any other subtractions to arrive at an adjusted gross income figure on Line 37.
  
  The adjusted gross income figure does not include your standard deduction or exemptions. Subtract those items on subsequent lines on Form 1040, add in your Schedule SE total, and you have reached your taxable income. Read the tax tables for your total taxes just as you would as an employee, as the IRS considers your income as ordinary income for taxation purposes.