Keep your independent contractor information and expenses separate from personal expenses

If you don't keep your business and personal expenses separate, you will create a huge headache come tax time. If you are audited and have been routinely dipping into your business account to cover personal expenses, the IRS may question the legitimacy of your business.

I recommend: Open a separate checking account specifically for your business. You can take advantage of establishing a free business checking account through Washington Mutual. Then use an inexpensive bookkeeping software like QuickBooks to track every financial transaction dealing with your business. Business contractors should also consider enrolling in a financial services program like Open: Small Business Network from American Express, which will separate and list your personal expenses from business expenses.

Use your independent contractor status to take advantage of certain tax breaks

As an independent contractor, you may be eligible for several tax deductions. If you work from home and have a dedicated space for your office, you can deduct your home office as a business expense. You can even deduct your monthly phone, Internet and utility services.

I recommend: Most independent contractors need to file an IRS Form Schedule C and Schedule SE to take care of self-employment taxes. Even though it's not necessary, you should also consider incorporating your business or setting up an LLC to protect your personal assets from any legal action against you.

Secure adequate insurance

Business contractors are not eligible for many of the benefits employees receive like health, liability or disability insurance. You will need to provide those things yourself and the rates for individual policies can be quite high. Many independent contractor agreements, or the independent contractor form you may be asked to sign, clearly states that you will receive no typical employee benefits like insurance coverage while working for them.

I recommend: Take a closer look at your professional affiliations. If you belong to your local chamber of commerce, alumni associations, a credit union or other organization you may be eligible for group discounts. You can also join the Freelancers Union for support and group rates on medical insurance policies like Golden Rule, dental disability and life insurance policies.

Independent business contractors must take action and plan for retirement

This is another thing your independent contractor agreements or independent contractor form will not provide. Just because you won't receive a 401(k) doesn't mean you can't plan for your own retirement. You can investigate setting up a Single Employee Pension (SEP) IRA plan or a 401(k) plan designed for self-employed individuals on your own.

I recommend: ShareBuilder.com offers what is known as the Plan4One. This is a 401(k) plan that you can set up starting at $75 and continue to pay a $15 monthly fee to cover the maintenance fees. Invest Safe also offers a Solo-401(k) plan costing only $100 annually to maintain.