In addition to their annual tax return, US contractors who earn a profit must pay their tax returns in quarterly installments, four times per year, on April 15, June 15, September 15, and January 15 (the next year). These dates vary each year so that payments don’t fall on weekends. Why does the government require this? Probably to ensure that freelancers don’t spend everything they make and are unable to pay taxes that an employer would otherwise withhold from their paycheck.
Most freelancers will have to make not one but two quarterly payments: One to the federal government and the other to their state government. For each, you’ll pay through a different system.
To pay the federal government, you’ll have to sign up for an account at Irs.Gov. To verify your account, they’ll mail you a letter with an authorization code, which can take weeks to arrive, so do it well in advance of your payment date.
To pay your state government, check with your state’s regulations. Here are links to California, New York, Texas, and Washington. (In states without income tax, such as Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, you may be exempt, but check to be certain.)
How do you know how much to pay? Hire an accountant, use an accounting software (like Quickbooks or Freshbooks), or do it yourself: Estimate your expected adjusted gross income, taxable income, deductions, and credits for the year.
After all that, you’ll still have to file your annual tax return, from which you deduct anything you’ve already paid. For annual filings, TurboTax works great, and can pull your data from Quickbooks.
Pros and cons to freelancing
Con: In addition to paying taxes more frequently, self-employed individuals also pay a self-employment tax that, at the time of writing, is around 14%. This covers social security, medicare, and a slew of things your employer normally pays for. Because, you are your own employer.
Pro: You may be able to write off business-related expenses such as the cost of your computer, your cell phone bill, and plane tickets, to reduce your tax burden. You also only pay taxes on your profits, rather than income. So if you make $100,000 and spend $70,000 in the process, you only pay taxes on $30,000.