Freelancing Taxes: Making Estimated Payments
If you recently became self-employed or started doing gigs on the side and expect to owe $1000 or more in taxes, you will need to take responsibility for estimating, withholding and paying your own taxes to the IRS on a quarterly basis.
In order to avoid the surprise of a huge tax bill, its best to seek out the advice of a Certified Public Accountant and to use a spreadsheet for your own planning purposes. Using a freelancer spreadsheet will ensure that you stay organized, and should help you record your projects, payments from clients, estimated taxes and any business expenses. You can view a great video tutorial on How To Pay Taxes As A Freelancer from Howcast, and download a spreadsheetfrom GoldAllianceGroup.com.
During your first year of freelance income, its best to put aside at least 30% each time you are paid so that you will be prepared to cover taxes due. Remember, that you can reduce your tax liability by recording and keeping receipts for business expenses such as equipment and travel. If you regularly make business purchases online, consider making a special electronic folder for saving any receipts you receive via e-mail.
In order to complete your quarterly estimated tax payments, the IRS will expect you to use form 1040-ES. Your estimated payments are due each April 15, June 15, September 15 and January 15. For example, if you are making a payment on April 15, that payment will be based on the taxable income you received between January 1 and March 31 (or, if your income is fairly stable, one-fourth of your annual self-employment tax). Form 1040-ES also includes instructions for completing payments by check, credit card or electronic transfer. You can download taxforms via IRS.gov (just enter "1040es" into the search box at the top of that page).
In order to avoid the surprise of a huge tax bill, its best to seek out the advice of a Certified Public Accountant and to use a spreadsheet for your own planning purposes. Using a freelancer spreadsheet will ensure that you stay organized, and should help you record your projects, payments from clients, estimated taxes and any business expenses. You can view a great video tutorial on How To Pay Taxes As A Freelancer from Howcast, and download a spreadsheetfrom GoldAllianceGroup.com.
During your first year of freelance income, its best to put aside at least 30% each time you are paid so that you will be prepared to cover taxes due. Remember, that you can reduce your tax liability by recording and keeping receipts for business expenses such as equipment and travel. If you regularly make business purchases online, consider making a special electronic folder for saving any receipts you receive via e-mail.
In order to complete your quarterly estimated tax payments, the IRS will expect you to use form 1040-ES. Your estimated payments are due each April 15, June 15, September 15 and January 15. For example, if you are making a payment on April 15, that payment will be based on the taxable income you received between January 1 and March 31 (or, if your income is fairly stable, one-fourth of your annual self-employment tax). Form 1040-ES also includes instructions for completing payments by check, credit card or electronic transfer. You can download taxforms via IRS.gov (just enter "1040es" into the search box at the top of that page).
