Tax Rules for the Self-Employed
I just started doing some freelance work, and now I need to pay federal taxes quarterly. How do I figure out how much to pay, and what forms do I need to submit?
Uncle Sam expects you to pay taxes on your income as you earn it through the year. For most people, that's easy -- their taxes are withheld from their paychecks by their employers. But people who receive income from self-employment, freelance work, dividends, interest, rent or prizes might not have taxes withheld, so they must find another way to pay the government throughout the year.
If you or your spouse has taxes withheld from another job, you may be able to increase your withholding to account for the freelance income. But if you still expect to owe at least $1,000 in tax for 2009 after subtracting withholding and credits, then you may need to file quarterly estimated taxes.
The estimated-tax worksheet in the Instructions for Form 1040-ES can help you calculate how much money to send. Your freelance income may vary from month to month, so don't worry about being too precise with the figure. You generally won't owe a penalty at tax time next spring if your withholding and estimated payments are greater than 90% of the taxes you owe for 2009, or if they exceed 100% of the total taxes you owed in 2008 (or 110% of your 2008 taxes if your adjusted gross income was more than $150,000, or $75,000 if you're married but file separately). And if you pay too much, you'll get a refund next spring. If your income changes a lot in the next few months, run your numbers through the worksheet again before filing next quarter's taxes.
The deadline for paying quarterly estimated taxes is actually a bit surprising -- the money isn't due every three months. Instead, the payments are due on April 15, June 15, September 15 and January 15. You'll file a Form 1040-ES payment voucher for each quarter and write the check to the United States Treasury. Don't submit the worksheet on which you calculated the amount you owe; just keep that for your records. Also, ask your state's department of revenue whether you need to submit estimated taxes there as well.
For more information about estimated taxes, see IRS Publication 505, Tax Withholding and Estimated Tax, and the IRS's Estimated Taxes page. For more information about the tax rules for self-employed income, see the IRS's Filing Requirements for Self-Employed Individuals and its Self-Employed Individuals Tax Center. For details about self-employed deductions, credits and how to file Schedule C and Schedule SE (for self-employment tax), see our Tax Toolkit for the Self-Employed.
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