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STARTING OUT
Freelancers, Meet Schedule C
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by Kimberly Lankford

Save for retirement

You can also lower your tax bill by making a tax-deductible contribution to a self-employed retirement plan.

You can deduct the contribution now and the money grows tax-deferred until you retire.

You generally have several choices, but if you didn't open up an account by the end of the calendar year, you only have one choice available now: a Simplified Employee Pension.

SEPs work a lot like IRAs and are available at most brokerage firms and mutual fund companies. You have until April 15, 2005, to establish your 2004 account and contribute the money.

Get ready for next year

If you continue to earn self-employment income this year, and aren't having any taxes withheld from your checks, you may need to make tax payments by sending the IRS form 1040-ES each quarter. Otherwise, you could end up with a penalty for late payments.

You should generally pay quarterly taxes if you'll owe more than $1,000 when you file your return. If you or your spouse has another job, you can increase your withholding to cover the extra income rather than bothering with quarterly payments. For more information, see the IRS's page on Paying Estimated Taxes. Use Form 1040-ES to figure and pay the tax.

Keep in mind that the first quarterly payment for 2005 self-employed income is due on April 15, with a separate form and address from your regular 2004 income taxes.

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