Sole proprietors and other "self employed" people are subject to the self employment tax in addition to regular income taxes.

The self employment tax is 15.3% and is basically payroll tax, but self employed people have to pay both the employee's and the employer's share.

The SE tax can add up quickly, and can be quite a shock to new small business owners.

It's important that you understand the tax consequences of being self employed, and the most common tax deductions for self employed people, so you don't overpay Uncle Sam.

Because the self employment tax is on top of your regular income tax, it's important that sole proprietors understand what deductions they are entitled to.

Here are some common self employed tax deductions:

• Automobile expense
• Advertising
• Commissions paid
• Contract labor
• Equipment and furniture (must be depreciated)
• Office supplies
• Inventory
• Postage and delivery
• Accounting and legal fees
• Continuing education
• Home office deduction

This is just a brief list of tax deductions for self employed people. If you are self employed, it's important that you either keep up with the ever changing tax law or that you hire a tax professional, so that you don't miss any deductions or credits that you may be entitled to.

One of the biggest expenses that small business owners incur is the business use of their automobile, especially if you drive a lot for business - either looking for inventory or visiting with customers/clients.

You can deduct either the standard mileage deduction or you can deduct actual expenses incurred, but under both methods you must keep track of both your total mileage and the miles driven just for business use.

In 2008, because the cost of gas rose so dramatically, the standard mileage rate rose from 50.5 cents per mile to 58.5 cents per mile (for the second half of the year only). That's the largest deduction the IRS has allowed for miles, so you can see why it's important to keep track of every mile driven for business use!

The best way to keep track of your mileage is to keep a mileage log in your car. You should track the miles driven, the date, the purpose of the visit, and if it's to meet with a customer, that customer's name.

Many people believe that the home office tax deduction is a red flag and they choose not to take it for fear of being audited. If you think about it, being self employed is a red flag all by itself, but you wouldn't close your business or not file your taxes just because being self employed is considered a red flag.

If you have a qualified home office, there is no reason why you shouldn't take advantage of this tax deduction. Just don't abuse it!

To qualify, your home office must be used regularly and exclusively for business. A good example of a home office is a separate room - such as a spare bedroom - that is used only for your office. A bad example would be using your dining room table as your home office.

If you have a qualifying home office, you can deduct a portion of your real estate tax and mortgage interest on the home office deduction schedule (this is more valuable than deducting these expenses on your Itemized Deductions schedule because home office expenses reduce your self employment tax). In addition, you can deduct a portion of your utilities, homeowners insurance, alarm, repairs, and depreciation.

This is a complicated tax law, so please talk with a tax professional to make sure your home office qualifies and that you are getting the most out of this tax deduction.