Posted by TRG_wy on 4/21/06 11:37am
Msg #115103

Taxes - Notary EExempt - FAQ

Because I mentioned in an earlier post that I file as Notary Exempt and got a lot of queries I have put together this little FAQ/FYI post.

Hope it answers some of your questions.

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Do I have to report my notarial income?

Fees received as a notary public are exempt from SE tax.

If your "Principal business or profession…" in the Schedule C is entered as "NOTARY PUBLIC" the net income from this business (Schedule C) will not be subjected to SE Tax. For this reason, your notary business must be listed separately. If the notary business income is part of another business activity and is reported jointly with the income of this activity, you can not use this system. If you choose to include the notary fees in the Schedule C of the other activity and define the "Principal business or profession…" based on that activity, the notary fees will also be subjected to SE Tax.
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Income from Work as a Notary Public is Exempt from the Self-Employment Tax

The work of notaries public is in demand with all so many people buying or refinancing their homes. A notary must attest to many signatures in the closing of a purchase or refinancing of real estate. A notary public serves as a state official who is a bonded witness of a signature. In Florida and perhaps in other states, a notary public can also perform a marriage.

While the net income of a notary public is subject to federal income tax, it is not subject to self-employment tax. Section 1402(c)(1) of the Internal Revenue Code and Regulations Section 1.1402(c)-2(b) provide that the income of a notary public is not subject to self-employment tax.

If a notary public has another business as a self-employed individual, the notary public must pay self-employment tax on the net income from the other business. The notary public must keep a separate account of the income and expenses of each separate business.

A self-employed notary public reports the income and expenses from serving as a notary public on Schedule C of Form 1040. However, the net income from serving as a notary public does not go on Schedule SE because the net income from serving as a notary public is exempt from the self-employment tax.

If the taxpayer has erroneously paid self-employment tax on the net income from serving as a notary public in previous years, the taxpayer should consider filing an amended return on Form 1040X to claim a refund for all open years. In general, a taxpayer has two years from the time the taxpayer paid the tax or three years from the date the taxpayer filed the return, whichever is later, to claim a refund. Taxpayers should consult a competent tax professional before filing an amended return.

Alan D. Campbell is a CPA in Arkansas and Florida and is self-employed primarily as an author of tax publications. He earned a Ph.D. in accounting with an emphasis in taxation from the University of North Texas. He is also admitted to practice before the United States Tax Court. He has published numerous articles on tax topics in professional journals. He is the co-author
of the book Tax Strategies for the Self-Employed and the revision editor of CCH Financial and Estate Planning Guide, 15th edition.
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Income and Losses Not Included in Net Earnings From Self-Employment

Fees received for services performed as a notary public. If you had no other income subject to SE tax, enter “Exempt— Notary” on Form 1040, line 58.

However, if you had other earnings of $400 or more subject to SE tax, enter “Exempt—Notary” and the amount of your net profit as a notary public from Schedule C or Schedule C-EZ on the dotted line to the left of Schedb. ule SE, line 3. Subtract that amount from the total of lines 1 and 2 and enter the result on line 3.
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No Self-Employment Tax on Notary Income

The work of notaries public is in demand with all so many people buying or refinancing their homes. A notary must attest to many signatures in the closing of a purchase or refinancing of real estate. A notary public serves as a state official who is a bonded witness of a signature. In Florida and perhaps in other states, a notary public can also perform a marriage.

While the net income of a notary public is subject to federal income tax, it is not subject to self-employment tax. Section 1402(c)(1) of the Internal Revenue Code and Regulations Section 1.1402(c)-2(b) provide that the income of a notary public is not subject to self-employment tax.

If a notary public has another business as a self-employed individual, the notary public must pay self-employment tax on the net income from the other business. The notary public must keep a separate account of the income and expenses of each separate business.

A self-employed notary public reports the income and expenses from serving as a notary public on Schedule C of Form 1040. However, the net income from serving as a notary public does not go on Schedule SE because the net income from serving as a notary public is exempt from the self-employment tax.

If the taxpayer has erroneously paid self-employment tax on the net income from serving as a notary public in previous years, the taxpayer should consider filing an amended return on Form 1040X to claim a refund for all open years. In general, a taxpayer has two years from the time the taxpayer paid the tax or three years from the date the taxpayer filed the return, whichever is later, to claim a refund. Taxpayers should consult a competent tax professional before filing an amended return.
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All the income you receive as a notary, including notarial fees, clerical fees and travel fees, must be reported. According to the Internal Revenue Service (IRS), notary fees should be reported in your gross income on Schedule C or Schedule C-EZ.

Can I deduct any business expenses?

Expenses for travel to customers’ homes or businesses, notarial supplies, seminar tuition, notary association membership fees, and Errors and Omissions (E&O) insurance may be deducted as expenses relating to your business. Even the cost of your bond for the year may be deducted on Schedule C or Schedule C-EZ.

In order to qualify for these deductions, you must have purchased the supplies and/or services. If your employer purchased the supplies and/or services, you cannot deduct them.

Do I have to pay self-employment tax?

Notaries are not required to pay self-employment tax on their notarial income because they are public officials. If notary fees are your only form of self-employment income, you can write the words “Exempt-Notary” on line 58 of Form 1040. If you are self-employed in a business that includes notarial service and your business makes over $400 a year after subtracting your notarial fees, you need to file a Form 1040 Schedule SE and report the portion of your self-employment income that is subject to self-employment tax. To do this, take your proceeds from the business and subtract your notarial fees.

Enter the amount of notarial fees on the dotted line to the left of Schedule SE Line 3 and write “Exempt-Notary.” Then subtract that amount from the total of Lines 1 and 2 and enter the difference on Line 3 (See Instructions for Schedule SE, Page SE-3).

For example, imagine Joe is a certified public accountant (CPA). He became a notary for the benefit and convenience of his customers and opened his own business, Accounts and Acknowledgments, downtown. Joe is required to report income from both his CPA work and his notary work in his gross income. Because he owns the business, he must pay selfemployment tax on the income from the accounting business. He is not required, however, to pay self-employment tax on his notarial income. Therefore, he can deduct the notarial income on Form 1040 Schedule SE and figure his self-employment tax only on his accounting income.

If you are a notary signing agent, you may also need to file a Schedule SE. See “What if I am a notary signing agent?” for more details.

Is there a specified amount that I have to make in notarial income before I am required to report it?

No. There is no threshold on notarial income. This means that even if you only do notarial work on the weekends for friends and neighbors and make only $20 in notarial income for the year, you must report the income on Form 1040 Schedule C or Schedule C-EZ.

What if I don’t charge notary fees or am required to turn my fees over to my employer?

If you do not charge notary fees, either because you choose not to charge your customers or because your employer has a no-charge policy for customers, you do not need to worry about filing tax returns for your notarial work. If, however, you charge clerical fees and/or travel fees, you must report the fees as notarial income on Form 1040 Schedule C or Schedule C-EZ.

Some notaries who work in a business, such as a bank or automobile dealership, may have agreements with their employers to split the fees charged for notarial services. If you give a portion of your fees to your employer but still receive more than $600 from your share of notary fees, your employer should prepare a Form 1099MISC reporting non-employee compensation. You should still count the compensation (no matter what the amount) from customers as part of your income and report that income on Form 1040 Schedule C or Schedule C-EZ.

If you are a notary signing agent, you may also receive a Form 1099MISC. See “What if I am a notary signing agent?” for more details.

Are my donated notarial services tax deductible?

No. Donations of service to a charitable organization, nursing home, school or any other establishment are not tax-deductible because you are not permitted to place a dollar value on your time for tax purposes. If, however, you purchase supplies, such as a seal highlighter, refill ink or pens, and use them solely for the charitable work, you may deduct the cost of the supplies under the charitable deductions section on Schedule A.

You may also deduct mileage to and from the charity work at the rate of 14 cents per mile. Parking fees and tolls are also permitted as deductions on Schedule A. These itemized deductions are permitted only if you do not take the standard deduction. (See Instructions for Form 1040, Page A-4).

What if I am a notary signing agent?

If you are a notary signing agent, you may need to file a Schedule SE to report selfemployment tax. Because a notary signing agent receives fees in addition to his or her notary fees to compensate for time and for transporting loan packages, a notary signing agent must treat the signing agent services as a separate business that is subject to selfemployment tax.

For example, imagine Mary has a full-time notary signing agent business that grossed $32,000 last year. Of that figure, $12,000 was notarial fees. She does not have to pay self-employment tax on the portion earned from notarizations.

However, she does have to pay self-employment tax on the $20,000 earned from other signing agent services.

Therefore, Mary would need to subtract the $12,000 in notary fees from the gross income earned by the business and report those figures on Form 1040 Schedule SE. See “Do I have to pay self-employment tax?” for more details.

If you are a notary signing agent and receive more than $600 per year from any one company, that company will prepare a Form 1099MISC. You may not receive a 1099MISC from every company for which you complete loan signings; however, you are still required to report all income from loan signings on Schedule C or Schedule C-EZ.

You also are required to file a Schedule SE if the signing agent portion of your business minus the notary fees makes a profit of more than $400.

For More Information The information provided here is meant as a guide to aid you in preparing your federal tax forms. Please consult the laws in your state if you have questions about deducting specific notarial expenses. If you need more information on reporting taxable income, visit the IRS Web site at www.irs.gov. or consult a tax professional.

Reply by Stephanie_CA on 4/21/06 12:04pm
Msg #115117

Re: Taxes - Notary EExempt - FAQ - SIMPLIFIED IS BETTER

ALL Notary Public Income is included as Gross Receipts.
(on 1040 Federal Tax Form)
Loan Fee: $100.00 (Total entered on 1040 as Gross Receipts.)
Notarized Sigs.8 80.00 (Value of notarized sigs.)
SE amount 20.00 (Remaining amount from Loan Signing - clerical fees, etc.)

Reply by cmd_NH on 4/21/06 12:50pm
Msg #115127

Re: Taxes - Notary EExempt - FAQ - SIMPLIFIED IS BETTER

Your prior posts read:

“I also file my taxes as Notary Exempt. Pay zero taxes.”

“The notarization portion ONLY is exempt from self-employment tax.”

“That is the only portion that is non-taxable directly. But mileage is , home office, utility portion, land-line for fax, and more. There are a lot of deductions.”

“ But since this is my primary source of income I can file as notary exempt"

I'm assuming that you mean that Notary fees are exempt from SE tax.....
and the fact that you have enough deductions, you weren't required to pay any Income tax....
This would be correct, but.....
It does not mean you don't pay any taxes because you are "Notary Exempt" or that you "file as notary exempt" The Notary Exempt part only pertains to the SE Tax.

Reply by TRG_wy on 4/21/06 1:41pm
Msg #115142

Re: Taxes - Notary Exempt - FAQ - SIMPLIFIED IS BETTER

I don't pay any taxes because my income does not require it. If I did not take advantage of the Notary Exempt status I would have to pay taxes.

Deductions do make a difference, as I have a home office and all related deductions it offers, plus business expenses. Other income or that portion not allowed for exempt status still is not sufficiant enough to cause me to pay taxes.

" It does not mean you don't pay any taxes because you are "Notary Exempt" or that you "file as notary exempt" The Notary Exempt part only pertains to the SE Tax."

It means that because I CAN file as Notary Exempt and reduce my income by that amount allowed, I do NOT have to pay any taxes.

Reply by cmd_NH on 4/21/06 7:28pm
Msg #115221

Re: Please link to where you read.....

"I don't pay any taxes because my income does not require it. If I did not take advantage of the Notary Exempt Status I would have to pay taxes."

I don't know what country you are from, but here in the USA all income is taxable. You can exclude the Notary fees (up to the maximum allowed by your state for each notarization) from self employment tax and that's it. If you read your own post in this thread you can see this.

Also if you read publication 334 Tax Guide for Small Business

Page 27:"Notary Public. Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ."

Page 42 re: SE Tax: "Notary Public. Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ but are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)."

Schedule SE Instructions: "You must pay SE tax if you had net earnings of $400 or more as a self-employed person."
Page 2 of instructions: "Income and Losses Not Included in Net Earnings from Self Employment"
#2: "Fees received for services performed as a notary public. If you had no other income subject to SE tax enter "Exempt-Notary" on Form 1040, line 58. However if you had other earnings of $400 or more subject to SE tax, enter "Exempt-Notary" and the amount of your net profit as a notary public from Schedule C or Schedule C-EZ on the dotted line to the left of Schedule SE, line 3. Subtract that amount from the total of lines 1 and 2 and enter the result on line 3."

So.... it seems to me the only way you didn't have to pay taxes is because on Schedule C you showed a net loss after subtracting expenses from gross income. Not that you didn't have to pay taxes because you are an "Exempt-Notary".

JMHO

Reply by Cindy Dorman on 4/21/06 7:52pm
Msg #115226

Re: By the way...

I hope you are not claiming all of your signing fees as notary fees. If this is the case you are mis-stating your income. JMO

Reply by TRG_wy on 4/21/06 11:24pm
Msg #115251

Re: By the way...

No I'm not. Just the amount allowed for notarial services, The rest, like mileage and printing come under business expenses and deductions

Reply by TRG_wy on 4/21/06 11:22pm
Msg #115250

Re: Please link to where you read.....

That is exactly what I have been saying. Why are you making it so confusing?
If I had $6,000.00 in notarial fees I could claim as notary exemt then that comes off the top for SE. Otherwise I would have to pay taxes on it as regular incom, which is is NOT.

And BTW - not ALL income in the US is taxable either.

Reply by Cherilyn_CO on 4/21/06 11:07pm
Msg #115248

I think I'm confused here...

If your income doesn't require you to pay taxes, then your income wouldn't require you to pay self employment tax either. If you have a negative number or 0 at the bottom of your schedule C, you carry that number over to your SE Tax form. Doesn't matter if you're a notary or not.

So how could you not have to pay taxes because of your notary exempt status?

1000.00 Signing Income
Let's say $100.00 of that income is strictly for notarizing documents.

$1000.00 goes on your 1040 line whatever for income. $900.00 goes to the self employment tax form in which your portion of Social Security and Medicare calculated (and I'm much too lazy to find the form number or the tax rate-.062 and .145, I think though) and then this tax flows through to the 1040 line whatever on the 2nd page.

Now, let's say your have a
(1000.00) income
with $100.00 of notary income

That -1000.00 goes to your 1040 as a loss on line whatever-But because you have a loss, there's no calculation for the SE tax.

So with that being said, I still don't get what you're saying :-)

Reply by TRG_wy on 4/21/06 11:29pm
Msg #115253

Re: I think I'm confused here...

I think you all are trying to read too much into this.

I also have an office in my home, depreciation for computer, printer, fax and a lot of other right offs. It just works out that I end up not having to pay taxes. If I didn't claim my notary exempt status or my business expenses for doing it I probably would owe taxes since it would just be straight income w/o any deductions.

Reply by TRG_wy on 4/21/06 11:53pm
Msg #115259

Re: I think I'm confused here...

Here is an example:

Total income is $16,000.00 - bottom line earned income.
Total notarial acts $6,000.00 - notarial acts perfromed and deductable (exempt)
Other Income is $10,000.00 - milage, printing ....

The $6,000.00 is notary exempt but the $10,000.00 is taxable incoime. With business expenses, home office, mortgage interest, medical, insurance... it drops me down to having to zero taxes.
If I didn't have that $6,000.00 as exempt (or just declared it regular incom) then yesy I would have to pay taxes. I do not even qualify for Earned Income Credit because I essentially do not have any income.

Reply by John_NorCal on 4/22/06 1:21am
Msg #115280

Re: I think I'm confused here...

In your example, that $6,000 is only exempt from SE taxes not income taxes. Your total income is $16,000 of which $6,000 only is exempt from SE taxes. You do not take the $6,000 off and then deduct your expenses from the $10,000.

Reply by PAW on 4/22/06 8:24am
Msg #115300

Re: I think I'm confused here...

Using your example:

A. $16,000 gross income - reported on line 1 (and probably line 7) of Schedule C

B. Figure your Expenses in Part II of the form - Enter total expenses on line 28 Sched C

C. Subtract your expenses from your gross income - Enter on line 29 Sched C AND line 2 Sched SE

D. Subtract the $6000 notary exemption from line 2 Sched SE and enter remainder on line 3 Sched SE

E. Calculate your SE Tax - Enter on appropriate lines on Form 1040 in "Other Taxes" and possibly "Adjusted Gross Income" calculation

The above is oversimplified but shows what needs to be done. Now, if your expenses (step C.) is equal to or more than your $16,000, then you would have $0 net income and thus $0 in SE taxes.

Is this what you are saying, or are you considering $16,000 minus $6,000 (= $10,000) as your gross income being reported in step A. above? If that is the case, then you have misrepresented your gross income as you need to report ALL your income as gross income, including what you would exempt in calculating your SE tax liability.

Reply by cmd_NH on 4/22/06 10:00am
Msg #115309

Exactly John and PAW...

If I'm reading TRG's posts wrong please correct me, but the way I interpret what he is saying is:
On the Schedule C he is: (THIS IS WRONG!)
$16,000 Gross income including notary fees(Line 1)
- 6,000 Notary fees (exempt according to his posts,not sure where he shows it on Sched. C)
=10,000 Gross Income(Line 7)
- 10,000 expenses (just an example to bring net income to 0)(Total expenses on Line 28)
= -0- Net Profit
No Schedule SE Tax due to no net profit.

This is how it should be(correct me if I'm wrong):

On Schedule CTHIS IS CORRECT!)
$16,000 Gross income including notary fees (Line 1)
- 10,000 expenses(just an example)(Total expenses on Line 28)
= 6,000 net profit (Carried over to 1040-Line 12 and Schedule SE-Line 2)

Then on Schedule SE
Line 2: $6,000 (From Schedule C, Line 31)
Dotted line of Line 3: (Exempt-Notary $6,000)
Subtract amt on dotted line from line 2: = -0- (SE Taxable.) (entered in box of line 3)

Don't mean to keep this going or sound bi**hy, but I don't want others to interpret it the way I have. And if I am the only one that has interpreted it wrong, I apologize. But looking at other posts, I am not the only one reading it this way.

JMHO

Reply by cmd_NH on 4/22/06 10:04am
Msg #115310

Re:that unhappy face just popped up...Not mean't to be there n/m