I have been self-emplyed for the last two years as a freelance for income tax purposes. I include ALL income, whether it meets the $600 threshold or not, because in an audit, that $599 check could turn into thousands of dollars in iinterest and fees.
However, I also claim mucho expenses. A portion of my house is written off (measure the room vs. the SF of the house because that percentage dictates more than just how much space you're taking up)
I take to my accountant a spreadsheet showing what ALL my utilities are (not just internet but ALL. As a travel writer, I watch the Travel Channel heavily so a percentage of our television/satellite bill is written off)
As far as quarterly payments, there is a threshold you must meet before it's "required". You need to talk to an accountant to help make that determination. I have Quicken for business and it does the paperwork for me (I haven't had to do it yet, let's say 'in theory') But, again, only a registered Tax professional can answer that question. Don't trust "Joe the Barber and Tax Preparer". I know a girl who does this and she's missed out on medical write-offs for years and she pays $150 a month for ONE prescription)
Keep track all year of any and all business related expenses. I write off my ink and paper since I'm the only one who uses my printer. I write off every single time I buy batteries for my pencil sharpener, I write off every ream of paper I buy throughout the year. Finally, and this is one people ALWAYS forget to do... Whenever you are using your car for business related activity - WRITE DOWN THE BEFORE AND AFTER MILEAGE!!!!!!!!!! Keep track of mileage, ALWAYS.
Also, there is a "rumor" that you can only write off three years of losses before the IRS tells you it's a "hobby". This isn't true. Okay, it is in some cases, but in my case, I am actively promoting myself as a writer, I am getting "some" work, but I am showing a loss for the last two years... I can keep doing that for so long as I am promoting myself. Last year, I showed a loss of about $1500, this year about $1800. In countering my husband's pay and taxes, we broke even for 2007 and got bsck $212 this year (which to me is pretty much breaking even)
Never turn in "just" the $600 or more 1099s. Even if the IRS isn't getting one, that doesn't mean they won't find out you got paid for work that was less than $600. I'd rather pay the little bit in taxes every year on income that doesn't bring a 1009 with it than look at an audit and explaining where $599 came from in our bank account (and yes, they will look at that if you're self-employed).
I got a letter the first year I claimed freelancer about showing more income than my 1099s showed. I wrote them back with a copy of the cancelled check showing income that didn't have a 1099. I got a letter back with, "Thank you very much, consider the matter closed".
