The Tax Surprise
Self-employment tax is 15.3% on top of income tax. Combined effective rates easily exceed 40%. Without employer withholding, the full burden hits at filing time. Many freelancers and gig workers owe $10,000 or more in their first year of self-employment.
Prevention
Make quarterly estimated payments. Keep records. Separate personal and business finances. Consider S-Corp election when income exceeds $50,000-$60,000 to reduce self-employment tax. Set aside 30% of every payment for taxes.
Self-employment is the most tax-advantaged way to earn income. But only if you plan for the taxes.