Reply by taxpro on 12/6/05 2:02pm
Msg #80647
Sorry, no go on street clothes
You cannot deduct your clothing or cleaning it, unless it is a specialty uniform that is not suitable for everyday street wear. An example would be a nurse's or a policeman's uniform. A business suit is not deductible, even though that's the only reason you bought it. In fact, there was a case where a painter deducted his white painter's overalls, and it was disallowed. They said it can be worn as everyday clothes. He asked how could he wear them as everyday clothes when they have paint all over them? It didn't matter, he lost. That's the standard. Now, if you had shirts made with your business logo on them, and you always wear that to closings, that might fly, but I wouldn't guarantee it would hold up in audit.
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Reply by taxpro on 12/6/05 1:47pm
Msg #80638
Basics of taxes for notaries
If you're a sole proprietor (not a corporation or partnership), you report your income and expenses on Schedule C. Keep a list of your notarization fees and signing fees separately, because the notarization fees are exempt from Self-Employment tax (Social Security). They are not exempt from Federal or State Income Tax, just from Self-Employment Tax. You only pay tax on the net income, after expenses are deducted. You can deduct anything you purchase or use in your business. Cell phone, business phone, pager, supplies, paper, toner, business cards, advertising, membership fees (to be listed on NotRot or other sites), notary bond, stamp, E&O insurance, auto expenses, etc. The biggest one for us is mileage. Keep a mileage log in your car and log miles to do closings, drop Fedex packages, pick up supplies at Office Depot, etc. From Jan 1 2005 through Sept 30 2005, the rate is 40.5 cents per mile, and from Oct 1 thru Dec 31, it's 48.5 cents per mile. (BTW, it's going back down to 44.5 cents on Jan 1, 2006). You may use your actual auto expenses instead, if it's advantageous, but you still need to keep a mileage log, plus all your auto expense receipts. If you use the standard mileage rate, it includes all expenses for your auto except parking, tolls, interest (on your car loan), and personal property tax. You can deduct these things in addition to the standard mileage rate.
You must depreciate your equipment, such as your computer, printer, copier, office furniture, and fax machine. However, you may elect to expense them in the year you purchase them by taking the Section 179 election. Whether you expense them in the first year, or depreciate them over the statutory period, you use Form 4562, Depreciation and Amortization. The total from this form carries to Schedule C, as an expense. The net income on Schedule C carries to the front of the 1040, and to the Schedule SE (Self-employment tax). On Schedule SE, you may make an adjustment for the notary fees that are exempt, and figure the SE tax on the rest. That carries to the back of the 1040. Also, 50% of the SE tax carries to the bottom part of the front of 1040 as an adjustment to income.
If you operate your business from your home, you may take an office-in-home deduction if you meet the qualifications. The main thing is that your office must be used exclusively as an office. You can take a percentage of your utilities, insurance, maintenance, repairs, interest and taxes. Also, if you own your home, you must take depreciation, so think about this and make sure it's worth it. When you sell your home, depreciation must be recaptured. Also, if you used your home for business within two years of the year your sell your home, the office portion of the house is a separate sale, a sale of business property, and will not fall under the Section 121 exclusion. In other words, any gain on that portion is taxable, and that's not what you bargained for when you heard about this great office-in-home deduction. But if you rent your home, you can just deduct a percentage of the rent instead of depreciating, and just walk away, free and clear. In that case, it's a no-brainer. It's something you should discuss with your tax person, because it should be decided on a case by case basis. Have Fun!
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