It’s April, and while young men’s hearts are turning to love, freelancers turn to thoughts of taxes. Yes, taxes. I know, I know… griping about taxes is only slightly less common than moaning about traffic or the weather. In my opinion, all the complaining is unjustified.

Taxes are more than a payment made to run the government (admittedly rife with flaws) they’re a demonstration of success in your chosen profession. And paying your fair share of taxes is the only patriotic act available to most of us. Fly a flag if you like, but if you really want to support your country, pay up. As much as we might not like the government overall, it’s our government, the one most of us voted for and the one we have to live with. So, quit shirking your responsibility and join the rest of us who have been supporting your lazy butt.

Sorry, I was talking to my son for a minute there.

Please note, earlier I said, ‘fair share’. I am not advocating the IRS as a charity– whose motto would be “Give till it hurts.” Find and take all the deductions you are allowed. Just don’t play fast and loose with iffy credits you read in some blog. (More on deductions later.)

Who needs to file?

With few exceptions, anyone who has self-employment income of more than $400 will have to file with the IRS. This is the situation most freelancers are in. We are sole proprietorships or subcontractors. oDesk will send us a form 1099 at the end of the tax year (actually by the end of January of the following year) showing how much we were paid. A copy of this goes to the IRS. If your net earnings exceed $400 for the year, the feds require you file form 1040C (or equivalent) to report this income. State tax laws vary, and I am sure non-US providers have rules specific to their home country, so I’m only going to talk about US federal taxes here.

Note that it is net earnings that require you to file. If you made less than $400 you don’t have to file, but I recommend you do.

Filing, even when you do not have to, establishes that you are a legitimate business (sole proprietor or subcontractor). This is going to protect you if you get audited next year or the year after. You are establishing a history. It also means you will have clear records available when you need them; as you might for a loan or when proving your income to get a rental, credit line, or financial aid.

Quarterlies- do you need to file four times a year?

If your tax liability is less than a thousand dollars at the end of the year, you don’t have to file quarterly. So, if you expect to owe less than a thousand dollars in taxes, the IRS doesn’t require estimated tax payments (their phrase for quarterlies). I’m going to suggest you file them anyhow, for two reasons.

First, filing every three months forces you to keep track of your income and expenses. It’s an ideal chance to get your receipts and statements organized so you aren’t caught in disarray at the end of the year.

Secondly, by sending a small amount of money in to the IRS every quarter (as your estimated payment) you aren’t left with nothing in the bank if you end up owing taxes. Remember, owing taxes is where we want to end up. Taxes are a reflection of profit, and making money is part of the reason we freelance.

Quarterlies are filed on form 1040-ES and the first one is due April 15th (for business done between January 1st and March 31st). Estimated tax payments are not actually paid every three months. For some reason, the IRS breaks the year into 3 -2-3-4 months. It’s nutty, but that’s the way they do it. See IRS publication 505 for all the gritty details. Just make sure you have the first one filed by April 15th.

In part two of The Tax Man Cometh I’ll go over some sweet deductions.

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• The Tax Man Cometh II