Self-employment

If you're in business for yourself, or carry on a trade or business as a sole proprietor or an independent contractor, you're considered self-employed.
Self-employed individuals are required to pay self-employment tax by filing Schedule SE along with Form 1040.
If you have employees, you must pay employment taxes, including federal income, Social Security and Medicare taxes.
You may need to pay excise taxes if you manufacture or sell certain products; operate certain kinds of businesses; use various kinds of equipment, facilities, or products; or receive payment for certain services.

Estimated Tax
Estimated tax is the method used to pay tax on income that isn't subject to withholding. You generally have to make estimated tax payments if you expect to owe taxes, including self-employment tax of $1,000 or more, when you file your return. Use Form 1040-ES to figure and pay the tax.

For estimated tax purposes, the year is divided into 4 payment periods. Each period has a specific payment due date. If you don't pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you're due a refund when you file your income tax return.

Business Expenses
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that's common and accepted in your trade or business. A necessary expense is one that's helpful and appropriate for your trade or business.

It's important to separate business operating expenses from expenses used to figure the cost of goods sold, capital expenses and personal expenses.

Business Use of Your Home or Car
If you use part of your home exclusively and regularly for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, real estate tax, rent, insurance, utilities, repairs and depreciation. You can even deduct the cost of your office furniture and equipment.

You may be able to deduct car expenses using either the actual expense method or the standard mileage rate (48.5 cents per mile of business use for 2007). If you use your car for both business and personal purposes and claim actual expenses, you can deduct only the business-use percentage of your expenses.

Income Deferral
If you're self-employed and use the cash basis of accounting (meaning all income is included in the year it's actually received), it may be advantageous for you to defer some of your income until the next year. For example:

A farmer grows and sells his crops in late fall of 2007. He receives payment for the crops in January 2008 and reports his crop sale income in 2008. But because he incurred and paid his expenses for seed, labor, water and fertilizer in 2007, those costs are deductible in that year.

But you can't defer income for which you had "constructive receipt" during the year. For example, you can't defer income if you receive a check during 2007 and don't cash the check until 2008. See IRS Publication 538 for more information about constructive receipt.

Hiring the Family
If you have your own business, an income-splitting opportunity is to put your children on your payroll. What you pay them is a business deduction for you and earned income for them. You can do this only if they actually work for you, and you can't pay them more than their services are actually worth. In addition, the wages can be used as a basis for funding your children's IRA contributions, giving them a start on retirement.

From H&R Block