The basic equation for a Schedule C, or another other business-related tax return, is income minus expenses equals profit. If the profit figure is a positive number, congratulations! You are one of the few self-employed people who made money as a freelancer. If the profit figure is a negative number, you have a business loss. Join the crowd. The vast majority of freelancers incur losses. A business profit increases your taxable income, and increases both your regular income tax and your Self-Employment Tax. The Self-Employment Tax, figured on Form 1040 Schedule SE (PDF), is 15.3% of your net profit and represents the Social Security and Medicare taxes owed on your business profit. As an employee (on a W-2), you only pay half of the Social Security and Medicare taxes (7.65%), and your employer pays the other half. As a freelancer, you are your own employer, so you pay both halves.
You need to set aside money at least every quarter, or better yet every month, towards your Self-Employment Tax. Let's say you anticipate having a net profit of around $1,000. Well, your Self-Employment Tax would be ($1,000 x 15.3%) $153. If you divide that into four quarterly payments, you should be paying $38.25 every quarter to the IRS as an estimated tax payment. You should also calculate your anticipated regular income tax. If you are in the 25% tax bracket, the additional income tax on your business profit would be ($1,000 x 25%) $250. So you should set aside $403 ($153 + $250) over the course of the year towards your estimated taxes. This mathematical example is over-simplified (the actual calculation of the income tax and the self-employment tax is a bit more complex), but this gives you a simplified way for budgeting for the federal taxes owed on freelance income.
I recommend all self-employed entrepreneurs to enroll in EFTPS, the Electronic Federal Tax Payment System. It takes some time to get set up with the EFTPS, but once you're fully registered with the Web site, you can make estimated tax payments by phone or by Web, with the payment debited directly from your checking account.