Posted by Treva Waller on 1/13/10 11:58am
Msg #317850

taxes

Can notaries in Va deduct the $5. notary fee for each seal on their taxes?

Reply by Teresa/FL on 1/13/10 12:18pm
Msg #317852

Notaries must pay federal income tax (and state tax if your state requires) on all income. You are not required to pay self-employment tax on the part of your income that is generated from notary fees. Many notataries choose to pay the SE tax in order to pay into the SS fund which can impact the amount of your SS benefits when you are old enough to collect.

Reply by Marian_in_CA on 1/13/10 12:29pm
Msg #317855

It can also impact your ability to collect Disability (SSDI) should you become disabled prior to retirement. To be eligible for SSDI, you have to have paid in a certain number of credits in a specific time period just prior to disability.

So, if you're not covered enough at this point to handle being disabled without that help... I recommend paying the SE tax rather than taking the deduction. Trust me on this one... I've posted before about how we lost lost thousands of dollars (we're talking 5 figures) in SSDI benefits for my husband because of just a couple of hundred dollars in saved taxes.

Reply by Teresa/FL on 1/13/10 12:32pm
Msg #317857

Good point Marian

As you pointed out, this has been discussed many times on this board as a quick search using the orange button will produce many hits.

Reply by Marian_in_CA on 1/13/10 12:46pm
Msg #317861

Re: Good point Marian

Thanks. I'm all about taking deductions when I can... but we learned the hard way about the employment/SS tax. My husband still gets SSDI benefit each month... but it is not would it really should have been. The biggest hit was to his lump sum beenfits that were paid after his claim was approved -- oh, boy... we took a big hit on it. It was either that or have the claim denied outright. Fortunately, the judge in his case tried hard to make it work, where most of the ALJ would have just denied it and told him to re-apply. And, if you've ever applied for SSDI, you know that's a 2-4 year process. It took us 3 years.

In our case, we actually weren't even aware of whole credits thing until after our lawyer explained it us. His employer at the time didn't pay tax because he was exempt since it was a University and he was a student. BUT... they don't tell you this. We just thought we were saving taxes. We just didn't know how the system worked at the time and that those credits are essential in determining his working status. As far as the Feds are concerned, he didn't work those few years, and therefore wasn't covered. The reality is that he did work, but he didn't pay in to the Insurance fund (SSDI)... and therefore, wasn't covered to earn the credits.

Saving taxes is a great thing... but the SE tax is an insurance fund, too.

Reply by Treva Waller on 1/13/10 12:41pm
Msg #317860

I thought i read that the $5 fee per stamp allowed by the state was tax deductable. That was my question. thanks for any help you can give me

Reply by John_NorCal on 1/13/10 12:50pm
Msg #317862

Not sure what your train of thought is...

but that $5.00 is not deductible by you for any reason other than to avoid the SE tax if you choose to do so. Marian made an excellent point about that, one that's worth bearing in mind.

John
Enrolled Agent

Reply by Marian_in_CA on 1/13/10 1:39pm
Msg #317868

It's not tax deducible in the traditional sense that you're likely thinking about.

It's deductible from your Self Employment tax. This is what you calculate on Schedule C on your 1040 (I think it's schedule C... don't quote me on that!)

When you work for an employer, you actually only pay about half the taxes. Your employer pays the other half out of their pocket. A lot of people don't realize that. When you're self employed, you have to pay ALL of the taxes yourself. Because you're a public official, the Federal Government allows you to deduct the actual fees you earn as a notary from the total in computing that tax. I has the effect of reducing the overall taxes that you owe. However, it also reduces (or possibly eliminates) the number of credits you earn for Social Security... and not just for retirement, but as I mentioned earlier, for Disability Insurance, too.


I'm no accountant or anything... this is just my own experience of course.

Reply by PAW on 1/13/10 12:54pm
Msg #317863

Your notary fee is not a deduction. You must pay income tax on all your income, including your notary fee. However, when calculating Self Employment (SE) Tax, your notary fee income may be excluded. But, as Marian and others point out, excluding income in figuring your SE Tax may reduce future social security payments.

Reply by MW/VA on 1/13/10 2:11pm
Msg #317871

There's so much confusion about this every year. As has been said, all income is subject to reporting for income tax. Notary fees qualify for an exemption from Self-Employment Tax. Self-Employment Tax is calculated on the Net Earnings (profit) from Schedule C.

Reply by Frenchie/TN on 1/13/10 7:44pm
Msg #317896

I will add to all these comments by saying pay the full SE tax. The few dollars you will save by deducting the amounts your state allows for each "seal" IS NOT WORTH IT! When you retire you will wish you had paid all that you could into Social Security. I lost my husband this past year and believe you me, I wish we had not "saved" on SE taxes. The benefits I am now receiving from SS are smaller than what they could have been.