What Exactly is an Independent Contractor?

I'm an independent contractor for a transcription company on the West Coast. And recently, several people on a message board that I frequent asked: what is an independent contractor? Basically, being an independent contractor means that you contract with a company to do work for them, and you bill them for your services. You are not a salaried employee. The downside of this is that you don't receive health benefits. The upside is that you are your own boss, and can take as little or as much work as you want.

It's a great option for moms who want to work from home, particularly if the company you contract with is flexible about deadlines. The company I work for, for instance, doesn't require me to clock in and out. So I accept work with a 48-hour deadline, and can work around my children's schedule. Some of my best work is done late at night after they're fast asleep. No phones ringing. No forgotten homework that needs to be ferried to school. (And yes, I realize I should let them suffer consequences. But occasionally, the consequences are going to be more painful for me than for them.)

An important thing to remember if you decide to become an independent contractor: you will have to pay not only income taxes, but also self-employment taxes, since your employer won't be deducting these for you. The self-employment tax goes towards your future Social Security and Medicare. This means paying quarterly taxes or being hit with a large tax payment on April 16th.

When filing taxes, you must file a Schedule C, the IRS form for reporting business income. And here's where you can save some money. Keep a detailed record of your expenses throughout the year. Rent, computers, printers, office supplies - anything that is used exclusively for your business qualifies. You may also be able to take a home office deduction if your office is used exclusively for your business.

Independent contracting isn't for everyone. But if you are fairly organized, enjoy working on your own, and are disciplined enough to work on a flexible timetable, then it might be the perfect solution for you.

Special note: Nolo.com has a great FAQ on being an independent contractor.