If you have worked for a large company, you may have been given a booklet touting the dollar value of all the benefits they give you beyond your base salary. If you've never had the opportunity to see it all added up in this way, it's hard to imagine how much money health and life benefits, disability insurance, payroll taxes, and paid vacation and sick time add up to. It's important to plan for the extra costs if you decide to go into consulting or open your own business.

Paying FICA

You and your employer share responsibility for paying state and federal income taxes as well as social security and Medicare taxes on your income. If you are self-employed, you are responsible for all the same taxes you had when you worked for someone else, plus the employer's half of the social security and Medicare taxes. This self-employment tax takes many by surprise because they are accustomed to their taxes being withheld automatically from paychecks.

When you're self-employed, the temptation is often to live on the entire amount your customers pay you and then to try to come up with the tax money when it's due at tax time. Avoid this temptation by automatically deducting 30 percent from all customer receipts and depositing the amount in a separate savings account earmarked for taxes. Check with your accountant at midyear to see whether the 30 percent rule of thumb is the right withholding target, and then make adjustments. Once your business is established, a good rule of thumb is to withhold 40 percent to pay taxes and to allow for a retirement contribution. You can reduce the need to plan for these taxes if you structure your business so that you are paid as an employee and taxes are withheld from your paycheck before you receive it.

Health Care Benefits

Under current laws, self-employed individuals are able to make a deduction on their taxes for the cost of their health insurance. Your premium may be higher than when you were part of a large group at a bigger company, but the health insurance deduction can help a little. When comparing the earnings you would have in a large company as an employee versus being self-employed, don't forget to include the cost of health insurance.

States that require everyone to carry insurance will have resources to tap for coverage. If your state doesn't require health insurance, consider joining an industry or business organization that makes group coverage available as a member benefit.

Contractors Versus Employees

The added cost of FICA taxes and the responsibility of keeping new hires busy makes adding staff under informal contractor agreements instead of employees very tempting. Be sure to review the IRS's rules regarding contractors before you hire. Workers who are working under your control with performance guidelines could be considered employees, whether you pay them as employees or not. Don't risk owing back taxes and penalties by trying to skirt the rules.