Posted by ChristineHI on 4/6/09 12:52am
Msg #283721

Learned something new today and wanted to share :-)

We are doing our taxes and have found out that notary public income is "exempt from self employment tax". Very interesting and will save us money this year. We are also going to go back to previous taxes and amend since we didn't know this before as well. :-)

You should check with your accountant if you are working on your taxes.
Here is an article that explains it as well.

Good news for once!

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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.

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.

Reply by Jessie Calderon on 4/6/09 12:54am
Msg #283722

Thanks for sharing!

Reply by ChristineHI on 4/6/09 12:56am
Msg #283723

Good news for once. Makes a difference on my taxes this year. Glad we did some research on this. Would have never known! :-)

Reply by JanetK_CA on 4/6/09 1:06am
Msg #283724

Anyway who isn't clear on this may want to do a search (or several). This has been discussed on this forum nearly every year (at least that I know of) around tax time. Many have been confused about how to interpret this. It refers only to the amount we earn per assignment that can be attributed to whatever fee our state allows us to charge. I'm no tax expert, but others here can offer more clarification, if necessary, and as I said, much has been posted on this before, including some mention fairly recently. This might not be the easiest thing to narrow down for a search here, but hopefully it can be found.

Reply by Lee/AR on 4/6/09 1:09am
Msg #283725

Another thing to be aware of is that deducting 'notary fees' from your SE tax will impact your future Social Security benefits.

Reply by BrendaTx on 4/6/09 8:19am
Msg #283740

Amen, Lee!

Deduct now and your future can be very impacted. I have continuously paid mine, except for one year.

Reply by Philip Johnson on 4/6/09 9:43am
Msg #283749

That assumes that the SS Administrator Bernie Madoff

leaves anything in the fund Lee. I take the full deduction under this and fund my own retirement efforts.

Reply by Marian_in_CA on 4/6/09 10:13am
Msg #283752

Re: That assumes that the SS Administrator Bernie Madoff

That's a great appraoch, if it works for you. But remember that it isn't just retirement... but disability insurance as well (SSDI). Everybody's situation is different, obviously... and some people can make it work, others can't. For me, the slight savings in my taxes just don't outweigh the benefits right now. If I were certain that the money I claimed for the exemption would be put toward something I could rely on to support me more, than I'd likely do it. I'm just not there yet.

But whtever you do... if you DO take the credit, you should take that saved money and put it towards retirement or savings. I've had a great accountant tell me this: If you're broke enough that you're S.E. credits to save money because you need that money *right now* then you can't afford to take the credit at all.

Reply by BrendaTx on 4/6/09 10:21am
Msg #283754

Re: That assumes that the SS Administrator Bernie Madoff

I'm clairvoyant. I knew someone would say that.



However, imho it's important to realize that the deduction impacts the future SS benefits one *may* receive.

Reply by Philip Johnson on 4/6/09 11:18am
Msg #283765

I thought your name was Brenda. n/m

Reply by ChristineHI on 4/6/09 1:10am
Msg #283726

Cool. I never knew anything about this before. :-)
It is something good to tell your accountant because it might help.
I will look at previous searches as well. Thanks for letting me know.

Seems like everything has been discussed at one point in the past. hehe.

I thought it was interesting. :-)

Reply by ChristineHI on 4/6/09 1:21am
Msg #283727

Thanks Janet. I guess I am always the last to find out things. hehe
Oh well, an interesting thing to tell your accountant. Oh well, maybe there are 2 people out there who didn't know this information besides me. :-)

Reply by jba/fl on 4/6/09 2:00am
Msg #283728

I'm sure there are many Christine - many 'glaze over' at the

mere mention of taxes, then all is lost! LOL.

As Lee said - need to consider impace on SS benefits, or even if that is an option sometime in the future. Whole 'nuther subject to be sure.

Reply by Marian_in_CA on 4/6/09 2:35am
Msg #283731

Yes, this is a great thing... and it gets discussed a lot. HOWEVER... it's important to realize that your self-employment taxes are also part of your social security credits. You know, that statement they send each year on your birthday? That's seriously important! If you don't have another viable source of retirement income or a a plan in the event you become disabled, you should think twice about taking the credit.

I learned this the HARD way in the last couple of years. My husband is disabled after a serious accident and after 2 years just had his disability claim approved by a federal judge. The problem? It had nothing to do with whether or not he was disabled... that was a given.... but whether he was covered by SSDI at all because of his work credits. You see, he worked a job for many years that, as it turns out, was exempt from paying in to social security (long story!) and his employer never withheld the money. Nobody ever told him the long-term ramifications of such a thing... we just thought he was exempt and it saved us in taxes.

Well, after sitting in appeals for awhile and going back and forth with our attorney and the judge, they finally managed to make it work... but at a HUGE cost to what we were initially expecting to get. That $40 a month savings he had for four years... less than $500... has turned into about $15,000 reduction in back benefits and approximately $200 a month in reduced disability benefits. Yeah... it hurts.

Because we're young, that's a big hit since we were not entirely prepared for this and did not have much of a savings or retirement built yet. And, with him disabled and not working these years, we went through what savings we did have.

SO... I'm not saying NOT to take the SE credit. Just think about it and weigh your options before you do take it. It's one of those little known things that you only really find out about after the fact when it comes to bite you in the rear. I will tell you this, though... if you don't have a comfortable retirement fund ready or do not have plans (and money) in place to help you survive in case you become disabled, I suggest you do NOT take the credit, because... as 'iffy' as it is, Social Security may be your only lifeline, and if you eliminate or reduce that option by taking the credit, you could be in real trouble.

This is especially true for disability... SSDI will only cover you if you have sufficient RECENT credits into Social Security. It's insurance... and if you don't pay in, you don't have credits... and if you don't have credits you aren't covered or your benefits will be greatly reduced. And, by exempting your income from your taxes, you're eliminating those credits. I know that nobody plans to become disabled, but I can attest that it can and does happen to the healthiest and strongest of people all the time. And goodness knows I'm the last person to advocate for giving money to the government (UGH!) but there are a few things that are necessary. Because of my experience, even though I *can* take the credit, I won't. I may never actually see the day to collect Social Security myself, but that's okay. It's just enough of a credit at this point that it outweighs the benefits.

Reply by JanetK_CA on 4/6/09 3:19am
Msg #283733

Excellent point. I'm seriously rethinking it myself. Like you, I didn't realize the implications in the beginning years. I was just happy to get the deduction. But I've seen the impact on those annual SSI statements. Unfortunately, the other thing they don't tell you is that SS income is based on your most recent years of earnings, so if you made a healthy salary earlier in life, it doesn't do you much good when it comes to SSI in retirement.

Reply by Marian_in_CA on 4/6/09 10:37am
Msg #283756

Yup, and that's why I told my little story... because very few people realize the full impact potential over this. Like I said, I'm never one to advertise taxes and giving the government more money, but this is a no-brainer for me right now.... since I have witnessed first-hand what not having those SS credits can do when you've got no other options.

If we were more wealthy or if we'd been made aware of this when we still had our savings, it might have been different. Believe me, when we realized it, we both felt really stupid and both said, "Why didn't anybody tell us?" -- and we soon realized that most people don't realize it -- not because the information isn't out there, but simply because it's a topic that makes people bored, and the only ones that usually know about it are the ones that don't "need" to because they have ample alternatives. The average Joe doesn't really care because he just doesn't understand how taxes really work.

Reply by MW/VA on 4/6/09 8:21am
Msg #283741

This is a really important item. I have used it, and didn't pay ANY SE tax. The # of notarizations x fee allowed by state actually exceeded Net Profit. It is in the TurboTax program, under "adjustments".
It is already being discussed to be careful about using this is you need the SE income to go towards future ss benefits.