@Syonyk, that is ugly so basically you're losing out on almost (or more) than 50% of your freelance income to taxes - that's absurd.
Yeah, the taxes on profits are high. On the other hand, I can deduct a chunk of my house (the home office space), any driving/travel I do (at $0.54/mile or whatever the current rate is), hardware I purchase primarily for work purposes (phones, laptops, servers, etc), my internet connection, a chunk of my cell phone bill, etc. So I can eliminate a good chunk of profit before I ever see that tax rate.
Also, my hourly bill rate for freelance stuff is almost 2x what I make (hourly, assuming standard work weeks, etc, etc) at my (very comfortably paid) day job. The only reason it's so low is because I'm doing work for people I've been working with for a long while. And I can do the work where I want, when I want, as long as it gets done. I actually miss my pure freelance days (and will be back there at some point in the next few years), because there's nothing like being able to say, "Damn. It's a beautiful afternoon out. I don't have anything immediately due. Screw it, I'm going biking." And then spend a few hours bicycling around in 75 degrees and sun.
The tough part about this is negotiating a fee as clients tend to be very tight and will move on to the next person if you ask for more. So it is a very hard balance between getting a fee that's worth your time and keeping the clients happy. I will say this, freelancing is great but it also tends to water down the industry as the fees are much lower than a full size firm would charge, at least in my industry.
Ah. Not sure what industry you're in, but I've generally found that getting in a race to the bottom isn't worth it. If someone wants to play that game with me, I suddenly don't have time for their project anymore. I have plenty of work (if I want it) that pays me well and is interesting, and my clients are happy with the work I do, because I'm the "coder of last resort." They know that for pretty much any weird thing that other people can't figure out, I'll be able to solve it. So they just throw me the weird stuff. :)
My life doing freelance work got a lot happier when I realized that I can set my rates or quotes however I want. If a particular customer is a royal pain to deal with, I start quoting them a lot higher. Either they pay me more, which compensates for the fact that they're difficult, or they find someone else to do the work, so I don't have to deal with them. On the other hand, if you don't pay your invoices promptly, I will fire a customer or refuse to work for them unless paid up front.