FWIW, I have been an IC for the past decade. The way I handle it is somewhat convoluted but works for me. As always, compare this advice with what you get from an accountant (and in this case, an attorney) before choosing how you want to proceed.
Originally I paid my taxes annually. This had several drawbacks, though.
1. the $3000-4000 bill in April, which is usually my slowest season.
2. After deducting everything possible to lower my tax bill, my annual income levels according to my tax returns were too low to be considered for other things that require tax records - like getting a mortgage/car loan.
3. Very very difficult to remember to save money aside for taxes.
I tried very hard to pay quarterly. I always forgot. Even when I put it on my calendar.
So. Last year I incorporated myself as an S-Corp, with myself as the sole employee. All paychecks that I receive for IC stuff now go to my company. I then pay myself a monthly salary using a payroll service. (I use paychex). I pay $39 per month for the service, in exchange for which they direct deposit my "paycheck" into my personal bank account, pay my payroll taxes & income withholding, unemployment taxes, Medicare and Social Security.
Bennies for me:
1. Employers are generally happy to write a check to a company (as a vendor) instead of to an individual as they don't have to report it as 1099 wages.
2. I only pay myself monthly what I need for my personal bills. This meant that I had $7000 to spare in my business account at the end of last year. I had to pay corporate income tax on it but did NOT have to pay personal income tax, SUTA/FUTA/Medicare/SSI on it. I saved a few hundred bucks this way.
3. I get a single W2 - from myself - instead of a gaboodle of 1099s.
Annoyances:
1. Incorporating and setting up the separate bank accounts is tricky.
2. Can't just transfer funds from my business account to the personal account to "escape" taxes - it actually complicates matters.
3. I have to budget for myself monthly, as if I don't pay myself enough I'm up a creek.
4. I have to pay SUTA/FUTA (unemployment tax) which I normally wouldn't have to do if filing as an individual.
5. I have to file both personal and corporate income tax returns.
6. Even though I'm incorporated, in my state (IL) I'm not eligible for corporate health insurance plans since it's a one-employee company.
Bear in mind that I only did this because at the time my income was going up to levels where taxes were getting to be onerously high. I've chosen to diversify my business this year and my income will take a major hit for it, so the whole rig is almost excessive this year, but I'm still quite grateful that I did it.
