Taxes in your first year as a freelancer
The first year is the confusing one. No employer is withholding tax for you, the rules talk about "last year's tax" you may not have, and the deadlines are unfamiliar. Here's the short version of what to do about taxes in your first 2026 of self-employment — and what you can safely ignore until next year.
- ✓Start setting aside 25–35% of profit from your very first payment.
- ✓You may be exempt from quarterly payments this year if you had no tax last year.
- ✓At tax time you'll add two forms: Schedule C and Schedule SE.
Set money aside from day one
Before anything else: every time a client pays you, move a chunk into a separate savings account. A quarter to a third of profit covers federal income tax plus the 15.3% self-employment tax for most people. A single freelancer netting $80,000 owes about $16,647 for the year — roughly $1,387 a month. Saving as you go is the whole game; the forms are easy once the money is there.
Do you even owe quarterly payments yet?
Maybe not. You're required to make estimated payments only if you'll owe $1,000+ in federal tax for the year after withholding. And there's a first-year break: if you had no tax liability in the prior 12-month year — common for students, recent grads, or anyone who didn't work — you generally owe no underpayment penalty this year even if you pay nothing during it. You'll still owe the tax in April; you just may avoid the requirement to pre-pay.
Why the safe harbor is easy in year one
The safe harbor lets you avoid a penalty by pre-paying 100% of last year's tax. If last year's tax was small — or zero — that target is tiny, which is exactly why first-year freelancers often get off lightly. Once you have a full year of self-employment behind you, next year's safe harbor is based on this year's (larger) number, so the easy ride is a one-time thing. Plan for real quarterly payments in year two.
The forms you'll file
At tax time, two schedules get added to your regular Form 1040. Schedule C reports your business income and expenses and produces your net profit. Schedule SE takes that profit and calculates your self-employment tax. If you make estimated payments during the year, you send them with Form 1040-ES (or online — no form needed). That's it: no business return, no separate filing, as a sole proprietor.
Set up the basics now
Open a separate bank account for business income and taxes, start tracking expenses (every legitimate one lowers both your taxes), and keep your invoices. You don't need an LLC or an EIN to start — a sole proprietor can use their Social Security number — though an EIN is free and lets you avoid putting your SSN on client forms. Keep it simple in year one; add structure when the income justifies it.
Frequently asked questions
Only if you'll owe $1,000+ for the year after withholding. If you had no tax liability in the prior year, you generally won't owe an underpayment penalty this year even if you don't pay quarterly — but you'll still owe the tax in April.
Related calculators & guides
A planning estimate, not tax advice. Figures use IRS Rev. Proc. 2025-32 (2026). Confirm decisions with real money on the line with a CPA or enrolled agent.