Be sure to read the comments for additional advice from a reader!
Yesterday, I received a comment on my post about the online writers conference from Kathy Kehrli of Screw You!. In it she mentioned paying her third quarterly tax payment -- which, ironically, I was doing at just that moment, too. However, the comment served as a reminder to blog about the estimated tax and quarterly tax payments.
If you are new to freelancing, you may not have any clue what I am talking about. Basically, as a full-time employee you pay your taxes to the government with every paycheck -- but as a freelancer, you are self-employed, so you have to take care of that yourself.
By April 15th of every year, you need to not only pay your taxes for the previous year, but also fill out a form estimating your taxes for the current year: the 1040-ES (not to be confused with the 1040-SE, which is for determining the self-employment tax -- stupid IRS). You don't have to mail in that form, but you do have to make your first quarterly estimated tax payment by April 15th. The remaining three are due by mid-June, mid-September, and mid-January, respectively.
If you haven't been doing this, don't freak out -- yet. For one thing, you only have to pay quarterly estimated tax payments if you will owe more than a grand in taxes at the end of the year. If you started freelancing late in the year, you may very well not owe that much in taxes for 2007. So while it will be a pain in the a$$ to come up with that much money all at once, at least you won't get penalized.
My advice is to download the form, estimate your income for the year based on what you've already made, and determine whether you will be over the $1,000 mark. If you are, or if you are close enough for concern, you should look into finding out how to start paying quarterly tax prepayments mid-year (as I have no idea).
Another option is available to those who have "real" jobs (or whose spouses do). You can determine how much you will owe, and have your employer take extra out of your check each month to help cover it. That way you don't have a big expense and a bunch of penalties, and you don't have to mess with making quarterly estimated tax payments (which can still be a big expense all at once).