How working on a freelance or contract basis can affect your taxes

For most Americans, getting square with the tax man happens once a year. But for about 14 percent of Americans, the tax man needs to be paid four times a year —Jan. 15, April 15, June 15 and Sept. 15.

You probably don’t need to make so-called estimated tax payments if you are an employee of a company and have taxes withheld from your paycheck. Estimated tax payments apply mainly to those people who work for one or more companies on a freelance or contract basis or who are self-employed. According to the IRS, you must make estimated tax payments for the current tax year if both of the following apply:

• You expect to owe at least $1,000 in tax for the current tax year after subtracting your withholding and refundable credits.
• You expect your withholding and refundable credits to be less than the smaller of: 90% of the tax to be shown on your current year’s tax return or 100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)

Sound complicated? If you are self-employed or are doing contract or freelance work, it can be difficult to keep on top of your tax obligations. That’s why it’s always a good idea when you start doing freelance or contract work to meet with a tax professional who can help you stay on top of your tax obligations.