Hello,
I've had free lance income for several years. I took HR Block's tax course though it was many years ago. The IRS treats "employee" income as "wages or salary" and is reported on your W2. "Freelance/Sole-proprietor" income is "self-employment income" and should be reported on a 1099-MISC by whoever is paying you. Did you get a 1099 for this income? Sometimes business don't report this and you have to track them down to get the 1099-MISC. But if they paid you less than $600, they are not required to report this income to IRS.
1. I gather that this is the first year you have income as a sole proprietor. You most likely will not have to pay quarterly taxes in this first year. Going forward, however, depending on how much money you owed this year (if any), you may have to pay quarterly taxes for next year based on how much you earned last year.
However, instead of paying quarterly taxes next year, you can simply increase the withholding on your W2 income. You would need to estimate how much you will owe because of your 1099 income. Your employer can deduct more from your paycheck. Fill out a W-4 and change your withholding. If estimating how much you will owe next year is a challenge, I would talk to someone more knowledgable like a tax professional or accountant.
If you don't pay quarterly taxes, you will be charged a "penalty." But honestly in my case the "penalty" has never been that much ($20 or less). So I have never paid quarterly taxes, so I that I can keep my money in my control. We did increase the withholding on my husband's W2 income.
2. Not sure about this.
3. Documents needed: your W2, 1099-MISC, and receipts for any expenses you had because of your 1099 income. You can and should deduct expenses you incurred due to this income. It will reduce your "net" income and therefore reduce your taxes owed. Look at publication 535 for eligible expenses.
Hope this helps!
