Overhead also includes the cost of your fringe benefits, such as medical insurance, disability insurance, and retirement benefits, as well as your income taxes and self-employment taxes.

If you're just starting out, you'll have to estimate these expenses or ask other ICs in the same field what they pay in overhead, then use that amount in your calculations.

You're also entitled to earn a profit over and above your salary and overhead expenses. Your salary does not count as profit; it's one of the costs of doing business. Profit is the reward you get for taking the risks of being in business for yourself. It also provides money to expand and develop your business. Profit is usually expressed as a percentage of total costs. There is no standard profit percentage, but a 10% to 20% profit is common.

Finally, you need to determine how many hours you'll work and get paid for during the year. Assume you'll work a 40-hour week for purposes of this calculation, although you may end up working more than this. If you want to take a two-week vacation each year, you'll have a maximum of 2,000 billable hours per year (50 weeks x 40 hours). If you want to take more vacation, you'll have fewer billable hours.

However, you'll probably spend at least 25% to 35% of your time on tasks that you can't bill to clients, such as bookkeeping and billing, drumming up business, and upgrading your skills. This means you'll probably have only 1,300 to 1,500 hours for which you can get paid each year, if you still want that two-week vacation.