01-03-2014 02:13 PM
Early last year (2013) I started working as a freelance editing contractor through Elance.com. It is not my full-time job, just an occasional source of supplemental income, so I really did not earn that much from it. I assumed at the time that I could just file some sort of self-employment income form along with my regular income tax information to report the income and find out how much tax to pay on that income by April. However, I've been reading and seen a few things online about self-employed people possibly having to pay quarterly estimated tax on self-employment income. If I haven't been doing that, is there a way to file my self-employment income just once a year? What form do I need? Or should I have been paying quarterly all along?
01-03-2014 07:53 PM
Self employment income and expenses are reported on federal Schedule C (or C-EZ) and included when filing your Form 1040. If your net profit is minimal, you may not be required to make quarterly estimated tax payments, but if you end up owing a balance due of $1,000 or more when you file your return, there could be a potential underpayment penalty in addition to the taxes owed. Taxes are a "pay as you earn" routine and this is one method to satisfy that requirement. Also it is important to note that self employment income is not only subject to income tax, but to self employment (SE) tax as well to credit your Social Security and Medicare taxes.
Another option you have instead of making estimated tax payments would be to have your employer withhold additional Federal income tax from your paycheck. You can file a new Form W-4 with your employer indicating a set additional amount on each paycheck. I am including a link below to IRS Publication 334 Tax Guide for Small Business to help you understand rules, regulations, and procedures regarding self employment.
I hope this helps. Good look to you.
Tax Professional (Retired)
01-23-2014 05:36 PM
As a freelancer, you are going to have to estimate your income.
Keep in mind that you also want to track expenses. Your self-employment tax is based on your net profit.
Your net profit is the total money you earn, less expenses.
The basic SE tax is 15.3% for the 2013 tax year--that's in addition to the need to withhold income taxes.
So, you'll want to estimate your income and hold back 15.3% plus enough to cover the taxes in your tax bracket if you prefer to 'pay-as-you-go.'
All tax advice is general. Please consult with a tax pro to receive advice specific to your tax situation.