The KEY question here is, what are you?

Fed/State tax processes are dependent on what type of business you are e.g. sole-prop, LLC, corp, etc.

Since you don't know how to handle contractor income, I'm guessing you didn't file any business paperwork, meaning you are automatically classified as a "sole proprietor" (key term). Anyone in the U.S. who legally does business without filing any paperwork is considered by the IRS as a sole proprietor.

This means that you can use something called "flow-through" taxation. All profit (or loss) from your business flows through to your personal tax filing. There is no need for a separate filing for your contractor work, just an additional form.

So with that assumption, @hga is right. File a Schedule C EZ (you probably don't need the more complicated, full schedule C) form.

You'll end up paying a special little "Self Employment" tax that is an addition 7.5% on top of FICA taxes, since employers usually cover this.

As far as sales taxes, did you actually sell anything other than your time?

You will, of course, need to pay state income tax, but that is absolutely no different than personal tax. This is because it flows through to determine your AGI, which is then used to determine your state tax liability.

Taxes are actually a fantastic non-technical hacking area. I'm fascinated by it. I also have dated several tax accountants, which I'll admit comes in handy every year as an entrepreneur.

To supplement the comment I left regarding TurboTax (http://news.ycombinator.com/item?id=1783200), I thought I'd lay out exactly how and when I interact with the IRS. About 50% of my income comes from freelancing; the other 50% from a full-time job.

January 15: Send the IRS a check for 28% of the gross freelance income you made between September 1 and December 31 of the previous year along with a 1040-ES (http://www.irs.gov/pub/irs-pdf/f1040es.pdf) Also send an estimated payment to your state of about 5-7%, based on your state's income tax bracket for your income. (My state, Minnesota, has easy online payments, so there's no paperwork required.)

Between March 1 and April 15: Do your taxes. Use TurboTax; it will simplify your life. Take appropriate deductions for everything that TurboTax asks, but make sure to have documentation.

April 15: Repeat what you did on January 15, but for income received between January 1 and March 31.

June 15: Repeat January's step again, but for income from between April 1 and May 31.

September 15: Repeat January again, but for income from between June 1 and August 31.

Note that you only really need to make estimated payments if you expect to owe more than $1,000 on tax day if you were to not make estimated payments. If you owe more than $1,000 when tax day comes, you may be charged a penalty if you didn't make estimated payments. (I'm not an accountant, so your mileage may vary.)

Where did you come up with the 28% figure for your estimates?

Based in part on the tax brackets shown here: http://www.moneychimp.com/features/tax_brackets.htm and several years of adjusting my estimated taxes in order to get as close to a zero-balance as possible when I do my taxes in April.

Unless it's changed since I last did this sort of thing:

Every quarter you need to file and pay estimated taxes.

Every year you need to file your individual tax form, with your freelancing income minus allowable expenses (be careful here!) in a Schedule C and you'll also need to pay your self-employment tax in a Schedule SE (this is both parts (employer and employee, as the fiction goes) of your FICA (Social Security and Medicare) taxes).

Thanks! Is there anything similar to sales taxes that are charged to the customer and then paid to the state?

That's an "it depends", as tax policy varies from state to state. So if your state has an income tax (most but not all do) you'll have some filing and payment(s) there which I forgot to mention. Some states or localities (county or city) may require something as well (perhaps a business license and fee if you're working out of your home, but it's often best not to ask about this since you might run into a zoning problem).

As a general rule states don't tend to levy taxes on computer services, but many of them are desperate. Maryland tried this in 2007 but repealed it before it could take effect (geographically it was complete insanity since the two big population centers are adjacent to other states) and in a Google search I found that the governor of Pennsylvania was proposing this earlier in the year. They did it from 1992-7....

Many clients require a business license to avoid having you classified as a Employee. (The IRS doesnt like you. There are a dozen or so traps that they lay for you, easily avoided if you know about them. See http://ohioline.osu.edu/cd-fact/1179.html) Better still, talk to an accountant. In general a business license isnt a huge hassle. The zoning requirements are usually waived if you have no employees and no visiting customers.

This really isn't true, at least on the IRS/fed level. You don't need anything to be classified as a business. It's merely "how you act" -- are you acting as a business, or are you acting as an employee. There's a list of definitions/guidelines to be aware of, but there is no business license you can get to help with this...

i recommend an accountant. you may need to pay state income tax as well.

Honestly, if you're just an independent contractor without complex corporate structure and ownership, or depreciating assets, just buy TurboTax. It will be less than what you'll end up paying an accountant, and chances are you'll just end up watching them use it.

Of course, if you have any abnormal conditions (e.g. multiple partners, several large assets, etc.) then a tax accountant could provide some money-saving advice.

Have you used TurboTax for this type of tax return? How complex was your return when you used it?

I've used TurboTax for my return for the last five (?) years; I have a full-time job (W-2), but I also do a fair amount of freelancing (1099).

I doubt that I would be able to do my return on my own without TurboTax; it walks you through all of the deductions you can take if you have contracting income - the portion of your mortgage that applies to your home office, any whole-house improvements you made to your home (heating/roofing/etc.), any improvements you made directly to your home office, depreciation of assets used solely for your job, etc. I'm sure that the ~$50 I spend on TurboTax each year is more than offset by the money it saves me.

Honestly, even if you understand the forms well, TurboTax is decent software to manage the process. OK it's crappy software... but it's better than spreadsheets.

Yep, and significantly more complex returns as well for the past 5-6 years.

Partnerships are very complex returns, and I was able to do a return for that.

Nice ... thanks everyone for the info!