It makes no difference whether you do occasional jobs or work full-time as an independent contractor; current tax laws require that you report this income at tax time. Cash payment does not make you exempt from the law, nor does the fact that you don’t “operate” a business.People who do not operate a business simply report the total of all cash and checks as miscellaneous income on their personal tax return. Expenses are deducted there as well; however those expenses cannot exceed the income. Someone who has occasional income from a hobby activity would fall into this category.Self-employed businessmen and women report all income and expenses on Schedule C, the small business tax form. The profit or loss calculated there is transferred to their personal tax return. A self-employed individual can use any business loss to offset personal income tax debt. For many, especially during those early years, this often lowers the overall tax burden drastically.People become self-employed for a lot of reasons, but the driving force for most is the desire to make money. When you’re in business for yourself, how much money you keep in your own pocket depends on how well you understand the costs involved in producing that income. And for many, one of the biggest costs will be taxes.Self-employed people are allowed to deduct all legitimate business expenses, depreciate major purchases, take advantage of business tax credits, expense research and development costs, deduct a portion of their residence if they have a home office, and a whole lot more. And, after deducting those costs, any remaining profit can be further reduced through pre-tax benefits, business retirement account deposits, education, and a host of other items designed to keep more money in the business owner’s pocket.There are many ways to avoid paying taxes; when you do it legally it’s called smart tax planning. IRS code includes a long list of tax-free expenses that are available to individuals and business owners; you just have to know what they are and how to use them to your benefit.It is important for self-employed people to realize that income tax is not the only bill levied at tax time when you work for yourself. This is also when you determine what you need to deposit into your personal Social Security and Medicare accounts.When you work for yourself these two taxes are referred to collectively as Self-Employment Tax. As an employee, your employer is required to pay half of your FICA (Social Security) and Medicare taxes. When you are self-employed you pay both halves because you are now both the employer and employee, and that amount can be overwhelming if you’re not prepared. And that’s where tax planning really helps.Tax planning is the combination of projecting next year’s income and expenses, using current tax laws to boost retirement and insurance benefits, scheduling the taxable events in your business and personal future, looking for tax law changes that will affect your bottom line, and calculating any quarterly tax deposits. A good tax professional not only prepares your tax return, he or she also helps you with tax planning as part of your annual visit.If your tax preparer doesn’t offer tax planning you’re not getting full value for your money, and you’re probably paying too much out in taxes. When tax planning is done right there are few surprises at tax time, your return is audit proof, and you have a clear picture of your financial future. And that just makes good business sense.