Navigating Taxes as a Dual Income Earner: How to Estimate Your Estimated Taxes for W-2 and 1099 Income

You end up filing one Form 1040, which has all your income and expenses and taxes on it. So you want to estimate income and taxes based on all this.

See IRS Publication 505 and the instructions for 2009 Form 1040ES. You will not only pay income tax on your self employment, but if you make a nice profit, you pay self employment taxes as well.

Schedule C is where you report your self employment income and expenses, and Schedule SE is where you calculate self employment tax.

It's sort of a combination since, as has already been pointed out, everything lumps together when you file your return.

I'm in a similar situation with my pension and a small amount of freelance income. Since I've elected not to have taxes withheld, I base my monthly set aside for taxes, the equivalent of your W-4 calculations, on solely the pension. When I receive side income I put 40% of it into my tax holding budget category to cover income (all at the marginal rate) and self-employment tax.

If your income will be higher this year than last, the easiest way to deal with estimated tax is to base it on last year's tax, as explained in Publication 505. If income will be less, you can use the annualized income method for calculating your payments.

When estimating your estimated taxes, you will need to take into account both your W-2 income from your employer and your 1099 income from your freelance work. The IRS requires you to pay estimated taxes on any income that is not subject to withholding, which includes both W-2 and 1099 income.

The best way to pay taxes as a freelancer is to estimate your total income for the year, including both your W-2 income and your 1099 income from freelancing. Then, you can use the IRS's estimated tax worksheet or an online tax calculator to determine how much you should be paying in estimated taxes each quarter.

It's also important to keep in mind that as a freelancer, you may be eligible for deductions and write-offs that can lower your tax bill. So, it's a good idea to keep detailed records of all your business-related expenses and consult with a tax professional to make sure you're taking advantage of all the deductions and credits available to you.