Self-Employment Income Basics: Opportunities and Challenges for Independent Workers

The information provided on this blog is for general educational purposes only and should not be taken as tax, legal, or financial advice. Tax situations vary, and you should consult a qualified tax professional for guidance specific to your circumstances.

Questions about the implications of self-employment for your taxes? I can help – fill out my contact form to get started!

According to the 2025 MBO State of Independence Study, 72.9 million Americans earned income outside of traditional employment. Whether you define yourself as a small business owner, self-employed, or just pursuing a side hustle, any income you earn pursuing a trade or business as an independent worker could have significant tax implications.

What is self-employment income?

According to the IRS, self-employment income "arises from the performance of personal services, but which cannot be classified as wages because an employer-employee relationship does not exist between the payer and the payee." This includes almost all earnings that cannot be classified as wages or passive income. You may sometimes hear this referred to as being an “independent contractor.”

Common examples of independent contractors include:

• Consultants

• Construction workers

• Professional cleaners

• Traveling healthcare professionals

• Freelance photographers and writers

• Artists

• Delivery drivers

What about gig-economy workers?

If you drive for a company like DoorDash, Uber, or Amazon Flex, you may be classified as an independent contractor and thus be earning self-employment income.

If I don't receive a 1099-NEC do I have to report the income?

If you received more than $600 from someone during the year, you may also receive a 1099-NEC to report the earnings. But even if you do not receive a 1099-NEC, you must report your total earnings. 

Once you are in business for yourself, there is an expectation that you will maintain sufficient records to substantiate your claimed income and expenses – more on that below.

Implications of self-employment

Being self-employed comes with both consequences and opportunities. Here are some of the biggest ones:

Self-employment tax

Here’s the biggest oversight for most: nearly all income earners pay employment taxes and the self-employed are no exception.

Employment taxes (often called FICA) include:

• Social security: 12.4%

• Medicare: 2.9%

If you’re an employee half of these taxes are withheld from your paycheck and your employer picks up the other half. When you’re self-employed, you pay both halves of the tax, for a total of 15.3% if your net earnings were $400 or more. For example, net earnings of $50,000 could result in paying over $7,000 in self-employment taxes, in addition to normal income taxes.

What’s more, because it’s not being withheld during the year, this tax is calculated and paid with your tax return – a nasty surprise if you haven’t planned ahead!

Here’s the upside: by paying self-employment taxes, you are earning credits toward your own social security benefits. Even better, when you’re self-employed you have many more opportunities to reduce your net earnings and thus the tax you owe.

Expenses

The IRS allows the deduction of “ordinary and necessary” business expenses. That phrase is key because despite what many on social media are saying, being self-employed does not mean you can write off everything you spend and your little dog, too. That said, it is an expansive definition and gives you the opportunity for tax savings.

Beyond the obvious expenses like supplies, tools, and professional services (such as your tax accountant!), other potential deductions include:

• Vehicle expenses (standard mileage or actual costs)

• Home office deduction

• Self-employed health insurance deduction

Recordkeeping

You already know that being in business for yourself isn’t always fun and games, but on top of the normal challenges, there’s also a paperwork requirement. The IRS requires that you maintain records of your income and expenses to support the numbers you report on your tax return. More than that, good records allow you to monitor business performance, detect errors earlier, and generally improve your ability to run a successful business.

Effective recordkeeping involves:

1. Tracking transactions, and

2. Preserving source documents

Your method will depend on the complexity of your business. For example, a photographer with very few transactions in a year may only need a spreadsheet and a shoebox. A construction contractor, on the other hand, may want to utilize double-entry accounting software and digital folders to keep everything organized.

How I can help

If this all feels overwhelming, you’re not alone. You started working for yourself because you had a great idea and a strong work ethic, not because you wanted to become a tax expert. I can help you identify tax-saving opportunities and establish the recordkeeping systems you need. My goal is to help you focus on the telos, or the long-term direction of your business, rather than drilling in on just this year’s taxes.

Contact me to get started!

The information provided on this blog is for general educational purposes only and should not be taken as tax, legal, or financial advice. Tax situations vary, and you should consult a qualified tax professional for guidance specific to your circumstances.