Ok, I have read more articles than I can count, and I'm still unclear on my expectations regarding taxes for this year.
I am newly self-employed (as of July 15th) and soon I will need to make my first estimated quarterly tax payment. To assist in this process, I've started to use the self-employed version of QuickBooks online. I've entered all of my personal details and projections, including former W-2 wages and taxes for Jan 1 through June 30th and the numbers that I'm being given as tax estimates. to me, seem rather low compared to former tax payments as a W-2 employee in previous years.
I've been in contact with QuickBooks support. They've been fast and mostly helpful but they tend to direct to US Government tax based articles and calculators found on IRS.gov. Maybe I'm over-reading this stuff, but usually that only leads me to more questions and further confusion.
Most of the calculations that I'm running seem to say that this low tax estimate is correct but I can't see how this can be true. When I total up all my expected taxes for this year, and what I'm expected to pay, the number is much smaller than what I made in 2015, and 2016 should actually be a better paying year than last year. Shouldn't my tax bill, therefore, be higher?
I found this one article on IRS.gov, Self-Employment Tax (Social Security and Medicare Taxes).
Specifically, the article states:
It should be noted that anytime self-employment tax is mentioned, it only refers to Social Security and Medicare taxes and does not include any other taxes that self-employed individuals may be required to file.
Ok, so by that one line, it is my understanding that when I pay these quarterly estimates, I'm strictly paying estimates on Social Security and Medicare. Does this mean that when 2017 arrives and I have to fill out my tax forms for personal income I'll have to calculate and pay 100% of all respective income tax on April 15th that are related to Social Security and Medicare!?
However, the following article is more indicative of everything I've found on the internet: Self Employment Federal Income Taxes.
This article doesn't say that estimated taxes include estimates for Federal Income Tax, nor does it imply that quarterly estimates only include Social Security and Medicare. Furthermore, I can't find a single article, anywhere, that explicitly states that self-employed individuals will pay their income tax 100% at end-of-the-year tax time.
My question is this; when I pay Quarterly Tax Estimates what, exactly, am I paying? Furthermore, should I always expect a tax bill come April 15th because that's how self employment taxes work when you're self employed?
Thanks to anyone who has been through this. I just don't want to be shocked with a HUGE, unexpected bill next year.