The extra accounting work required in order to deal with taxes actually forms a significant deterrent to doing freelance work on the side. Every time someone asks if I'd be interested in a project, I have to stop and think: is this worth dealing with Form 1099 and Schedule C and keeping track of business expenses and all that bullshit? Generally the answer is no: a job big enough that I can charge enough to justify the extra hassle is generally too big to fit in the amount of free time I'm willing to divert from travel and hobby projects.

Of course doing just one contract project in a given year means I'm screwed come next April 15th, and knowing that drops the cost of entry for other projects; but I do wonder how much extra liquidity there might be in the market for programming services if the IRS didn't demand such a hefty commitment to paperwork.