Posted by Elaine Sedlock on 2/25/08 9:50am
Msg #237011

Filing taxes (1st time as SE) . . . opinions PLEASE!

I know notarizations are exempt from SE tax and have read various that can be used in figuring what amount/percent/etc. to enter when filling out that part of the tax forms. But, what do you SA veterans do? By claiming the full value of notarizations (and tossing the mileage and other expenses involved in this business into the mix), the majority of signings I've done will show little to no profit. I don't want to pay any more than necessary but also don't want to raise any red flags! Open to suggestions. TIA!

Reply by John_NorCal on 2/25/08 9:55am
Msg #237014

It is what it is.
If you have kept proper records, and are taking proper deductions then you file and claim as you are entitled to do. You show a loss, you show a loss. Believe me, you won't be the only schedule C filer who shows a loss.

Reply by Cheryl Elliott on 2/25/08 9:57am
Msg #237016

Hi, Elaine, in CA we only record the fees for actual notarizations in our journals, as that is the legal requirement by the California Secretary of State.

At the end of the year, actually doing it every month is a time saver, I add up all the notary fees, which are exempt from self-employment tax, but are still taxable income. The rest is signing fees, travel, edoc fees, no-show fees. So everything is taxable, but again, in CA notary fees are exempt from Self-Employment Taxes.

Reply by Elaine Sedlock on 2/25/08 10:06am
Msg #237020

So, file honestly and take advantage of every allowance

available is the general consensus? If that's the way of the majority then I'll go w/the flow! All the better for me! How do you all feel about filing yourself vs. paying a professional?

Reply by Dennis D Broadbooks on 2/25/08 10:15am
Msg #237022

Historically I've Used a CPA...

...but will be filing myself this year. My tax pro decided to go in a different direction this year & was just what I needed to get me to go solo. Earlier in January I decided to visit TurboTax's online offerings & they've made it so easy I'm doing it with them. The best advice I've been given is whether you use a pro or do it yourself is to make sure you have documentation for EVERYTHING.

Reply by John_NorCal on 2/25/08 11:23am
Msg #237045

**in CA notary fees are exempt from Self-Employment Taxes.**

This is not specific to CA, this is a federal determination not state.

Reply by Cheryl Elliott on 2/25/08 10:01am
Msg #237018

Sorry, I meant to add this comment. At the end of the day, you have to account accurately for all expenses and income, and whatever it is, it is. If you show a loss, in the first few years of doing this business, it is understandable, but after seven years, the IRS and the State Franchise Tax board might wonder why you're in this business continuing to operate at a loss. That's what my CPA offered up to me a few years ago.

Reply by Elaine Sedlock on 2/25/08 10:11am
Msg #237021

PM to you Cheryl :) n/m

Reply by Elaine Sedlock on 2/25/08 11:25am
Msg #237047

Thanks to all -- you've been a great help! :) n/m

Reply by MW/VA on 2/25/08 3:08pm
Msg #237092

From my experience, here are a couple of tips. New businesses often file a loss the first year or two. If you're claiming a loss, SE isn't an issue (only calculated on profit). The IRS rule of thumb is if you claim a loss for more than three years, they consider it a "hobby" and not a "business". The nature of this businesss is that there is a lot of expense involved, and the IRS doesn't calculate how much profit you should have. You should see what owners of investment properties comes away with (pay little or no taxes).

Reply by SharonMN on 2/26/08 12:18pm
Msg #237218

It appears you don't understand the difference between a business expense and a tax exemption, or between a profit and a tax liability.

First you fill out Schedule C, where you report all of the money you receive as income and all of the money you spent on business expenses as expenses. Expenses should only include money that you actually took out of your pocket and gave to someone else. So, you can deduct the actual amount you spent on toner and paper (an expense), but you can't deduct the $25 per page you charged for edocs (that's income). You DO NOT deduct any notarization changes on Schedule C (unless you paid somebody else to notarize something for you) because no money left your pocket, so it's not an expense.

When Schedule C is all done, you will have an amount showing the profit or loss from your business. Follow the IRS instructions to enter that on Schedule SE (self-employment tax). The purpose of Schedule SE is to determine how much self-employment tax you have to pay on your profit. The instructions explain how to subtract the notary fees from the amount of profit you have to pay SE tax on. Note that you can only deduct fees up to the amount you charged. So, if you charged $50 for a signing that included 18 notarizations at $10 each (rates vary by state), you can only deduct $50, not $180. This applies even if you had other signings where you charged $100 and only notarized one spot. I find it helpful to do a spreadsheet for each signing - amount charged for signing, # of notarizations.

Best case scenario: your business shows a handsome profit, a large portion of which is exempt from SE tax. Of course, you'll still have to pay regular income tax on your profit.

IN RESPONSE TO:
By claiming the full value of notarizations (and tossing the mileage and other expenses involved in this business into the mix), the majority of signings I've done will show little to no profit. I don't want to pay any more than necessary but also don't want to raise any red flags!

Reply by SharonMN on 2/26/08 12:22pm
Msg #237220

....$25 per page you charged for edocs

Oops. If you've found a client willing to pay $25 per PAGE for edocs, you'd better be making a profit! And I would advise you not to pass that client's name on to the next newbie who asks for "a list of a few good companies to work for."