How do I decide how much to charge for my work?

When you're just starting out as an independent contractor, it can be tough to figure out what to charge your clients. You'll want to come up with a figure that pays your expenses, adequately compensates you for your time, and allows you to earn at least some profit. And, of course, you'll have to make sure not to charge more than the market will bear -- if freelancers in your area are willing to perform the same work for a much lower fee, you probably won't drum up much business.

Do I have to pay taxes on my freelance income?

When you work as an independent contractor, you have to pay income tax, just like an employee. Unlike an employee, however, you won't have any taxes withheld from your paycheck to cover income tax, Social Security, and Medicare. And also unlike an employee, you can't wait until April 15 to pay all of your taxes due for the previous year. Instead, you have to pay estimated taxes four times a year.

Fortunately, contractors can take advantage of some great tax deductions; for instance, the home office deduction can effectively take some money off your rent or mortgage.

How can I make sure that my clients pay me?

Many consultants find that they spend way too much time acting as a collection agency, going after deadbeat clients who refuse to pay their bills. The best way to avoid this problem is to use a written client agreement, clearly setting forth your fees (including late charges) and a payment schedule.

If a client still won't pay, you should start turning up the heat by persistently demanding payment and pursuing your legal options, if necessary.

Who decides whether I'm an employee or an independent contractor?

Initially, it's up to you and each hiring firm you deal with to decide whether you should be classified as an independent contractor or an employee. But this decision is subject to review by various government agencies, including the IRS and state workers' compensation and unemployment compensation agencies.