Here are the forms you need to file and the deductions you can take if you did freelance work or started a small business this year. By Kimberly Lankford, Contributing Editor December 19, 2008 Editor's note: This story was update in 2010. I picked up some extra work as a freelance consultant to help make up for my dwindling retirement savings. What do I do about income from self-employment at tax time? Here are some key things you need to know about taxes if you did freelance work this year or started your own small business – and strategies that can help minimize the bill. What to file. When you file your 2009 tax return, you’ll need to submit a Schedule C in addition to your 1040. You can use the shorter Schedule C-EZ form if you have business expenses of $5,000 or less, have no employees and no home-office deduction. Sponsored Content If your net earnings are more than $400 for the year, you’ll need to file Schedule SE to figure your self-employment tax, which includes Social Security and Medicare taxes. The rate is 15.3% of your net earnings. People who are employed by someone else pay Social Security and Medicare taxes of just 7.65%, with the employer paying the other half. Self-employed folks have to pay the full bill, but you get to deduct half of the amount you pay on Schedule SE on your Form 1040. Advertisement You should receive 1099s from clients reporting your 2009 income. That’s where you’ll find the information you’ll need to complete these tax forms. For more information, see Filing Requirements for Self-Employed Individuals and IRS Publication 334 Tax Guide for Small Businesses. What you can deduct. You’ll be able to write off many of the expenses from your freelance business, including the cost of a computer, printer, fax machine, copier and other equipment you use for work. Work-related phone calls and mailings, office supplies, copying, advertising, business travel and other expenses are also deductible. Your health-insurance premiums may be deductible if you aren’t eligible for health insurance from an employer or your spouse’s employer (you can’t deduct more than the net income of your business). You also may be able to write off the business use of your home, including a portion of your homeowners insurance, utilities, rent or mortgage interest (which is more valuable as a business deduction than as an itemized deduction). The amount of these deductions is based on the percentage of your home used for your business. To qualify, you must use the space for work on an exclusive and regular basis, and your home office must be your primary place for conducting business or meeting with clients. See the IRS Tax Topic on Business Use of Your Home and Publication 587 for more information about the rules. Also see Tax Breaks for the Self-Employed. Advertisement For a quick checklist of possible deductions, see our Taxopedia on Deductible Business Expenses. And for more information about deductions, see IRS Publication 535 Business Expenses and the instructions for Schedule C. Special retirement savings. You can also lower your tax bill by making a tax-deductible contribution to a retirement plan for self-employed individuals. If you're a sole proprietor, the two best choices are a Simplified Employee Pension or a solo 401(k). See Do-It-Yourself Retirement Plans for more information. Quarterly estimated taxes. If you continue to earn self-employment income and aren’t having any taxes withheld from your checks, you may need to make tax payments by submitting the IRS Form 1040-ES each quarter. Otherwise, you could end up with a penalty for late payments. Generally, you should pay quarterly taxes if you’ll owe more than $1,000 when you file your return. If you or your spouse has another job, you can increase your withholding to cover the extra income rather than bothering with quarterly payments. For details, see the IRS’s page on Paying Estimated Taxes, and use Form 1040-ES to figure and pay the tax. Got a question? Ask Kim at email@example.com.