When the subject of self-employment taxes comes up, every forum I’ve ever joined has always stirred questions and professionals talking about quarterly taxes. If you pose a self-employed tax question on a forum, you’re always going to get at least one person who says you have to file quarterly taxes as a self-employed person.
This is true…but only in certain situations. Most new freelancers don’t need to worry about quarterly taxes. Not unless they have a spouse who works or have income from another source. According to the IRS 2010 Tax Tables, you must have $9,450 in taxable income (line 43, on the 1040 form) before you owe more than $1,000 in tax liabilities. That’s taxable income…after deductions and such are taken out. (In other words, your Adjusted Gross Income, minus standard (or itemized) deductions and exemptions, has to be more than $9,450 to have $1,003 in tax liability.)
You can read up about estimated tax payments and what’s involved on the IRS’s Estimated Taxes page. Estimated taxes go by what you made last year, assuming everything will be the same this year. For those just starting out, obviously things have changed, so this year’s taxes won’t be the same as last year. So what do you do?
In short, this is what you need to know…you DO NOT have to file quarterly taxes and pay estimated taxes if the following criteria applies:
If this is your first year as a freelance writer, you can (in some situations) wait to figure out if you need to pay quarterly and estimate your taxes for the following year. That is, if you:
If that’s the case, you don’t have to worry so much about filing quarterly taxes this year. You can wait and see how much you wind up owing by the end of the tax year and make a decision about filing quarterly for later years. That is, so long as you realistically don’t expect to have more than $1,000 in tax liability.
Now, if your spouse works, things might be different. Take a look at last year’s taxes. What was your tax liability for the year? Were you close to the $1,000 mark already, without your income from writing? If so, your best bet is to go ahead and send in estimated tax payments. If you wind up owing nothing in tax liabilities, or you and your spouse are under the $1,000 limit and expect it to stay that way, then you don’t have to worry about quarterly taxes.