Real estate tax, Social Security tax, sales tax, excise tax, city tax, federal income tax, state income tax, personal property tax, gross receipts tax, fuel tax, Medicare tax, luxury tax - the list goes on and on.

As an indie which and how much tax do you have to pay?

Here is a simple overview of the two Federal taxes for which you are liable. They are federal income tax and self-employment (SE) tax, and their calculation is combined on your federal tax return.

The following explanation does not include any taxes unique to each state and or local government which may apply to your indie business or geographic locality.

INCOME TAX.

There are various kinds of income - a stock sale gain is one kind, for example, and payment for jury duty another. Most kinds of income are taxable - that is, subject to income tax. Some income, however, is not taxable - like municipal bond interest. And some income is sometimes or partially taxable, for example, Social Security payments received.

Just because income is subject to tax doesn't necessarily mean you will end up paying income tax on it.

If the total income subject to income tax is more than a specified minimum, then you must file a tax return. However, just because you must file a tax return does not mean that you will have any income tax liability. You may have enough deductions -- like medical expenses, mortgage interest and charitable contributions, or exemptions for children -- to completely wipe out taxable income and therefore you'd have no income tax liability.

SELF-EMPLOYMENT TAX.

While income tax is paid on any kind of taxable income, self-employment tax is paid only by people who work for themselves. It is the Social Security and Medicare tax for self-employeds and is paid on a self-employed's net earnings.

Net earnings - think of it as net profit -- is what you have left after subtracting all business expenses from your gross self-employed income.

You must pay self-employment tax if net earnings from self-employment are $400 or more. The SE tax rate is 15.3% and is made up of two components: 12.4% Social Security tax plus 2.9% Medicare tax. Social Security benefits are available to self-employed persons just as they are to wage earners. Your payments of SE tax contribute to your coverage under the Social Security system which provides you with retirement, disability, and survivor benefits. Medicare coverage provides hospital insurance benefits.

Let's look at the taxes on an IT consultant's $12,000 fee after subtracting $2,000 for expenses and assuming a 15% tax bracket:

Consultation Fee [Gross SE Income]  $12,000

Business Expenses                               (   2,000 )

Net Profit                                                  $10,000

15% Income Tax                                      (   1,500 )

15% SE Tax                                             (   1,500 )

Remaining after taxes                          $   7,000

Another way to look at it: Of the $10,000 net profit, 30% must go toward taxes.

Remember that no state taxes were considered in this example and also that 15% is one of the lower Federal tax brackets.