Posted by pat/WA on 2/18/12 2:31pm
Msg #412235

tax question

When you calculate your self employment tax do you multiply the number of notarizations you completed during 2010 times the dollar amount the state allows. Washington state allows $10.00 per notarization. i.e. 3000 notarizations exmemption from tax $30,000
or do you calculate the self employment tax on each individual signing i.e. signing 5 notarizations times $10.00 fee paid $100.00. Tax to be paid on $50.00

Hope this wasn't too confusing.

Reply by Colleen Heaton on 2/18/12 2:44pm
Msg #412237

Both ways should turn out to be the same. If you were using a Notary Signing Agent Log, each closing that you complete lists the number of notarizations performed and the net amount to report on Schedule SE. This Log is indispensable for me because all of my business is summarized on one page, including mileage allowances for Schedule C, and whether or not payment has been received.

Reply by ReneeK_MI on 2/18/12 2:49pm
Msg #412238

you'd have to do it on each signing

Sometimes, you are paid less than it would've been had you been paid per notarization. Sometimes, you're paid more. You can't 'subsidize' one with the other.

Reply by Barb25 on 2/18/12 2:52pm
Msg #412239

Re: you'd have to do it on each signing - Correct

LOL. Unfortunately... you cannot subsidize one with the other.

Reply by Colleen Heaton on 2/18/12 2:53pm
Msg #412240

Re: you'd have to do it on each signing

I wish I was back in Washington State. Idaho only permits $2 per notarization.

Reply by Barb25 on 2/18/12 3:00pm
Msg #412242

Re: you'd have to do it on each signing

$2 per notarization or signature. When I was in NY it was $2 per signature so for married couple 1 stamp 2 signatures $4.00. Florida is $10.00 per notarization.

Reply by Doris_CO on 2/18/12 3:02pm
Msg #412243

You will calculate the amount on each individual signing. On some signings you might have had more notarizations then the fee for the job. For example, you had 12 notarizations but the fee you were paid was $100.00 for that signing. You can only deduct $100.00 not $120.00.

Reply by Linda_H/FL on 2/18/12 3:03pm
Msg #412244

I keep a record of the fee charged, how much

is attributable to notary fees, how much to "other" fees - in columns

A $150 signing with 8 notarizations would show total fee $150 Notary Fee $80 Balance $70

That total of notary fees at the end of the year is the figure entered into Turbo Tax when it asks "is any of your income attributed to exempt notary fees?"

Reply by MW/VA on 2/18/12 3:06pm
Msg #412246

I use the formula in your first scenario. No. of notarizations x state fee = adjustment for SE tax.
BTW, I always end up with more in notary fees than the net profit, so it zeros out. I haven't paid SE tax. That's also been discussed before, because anyone who is building up their ss acct. for the future, may not want to take the deduction.

Reply by Allen/Mo on 2/18/12 3:18pm
Msg #412247

In missouri we are only allowed $2 per signature but for mobile notary work we are allowed to charge a $25.00 convenience fee which i also include as notary income. I don't know if this applies in other states or not but worth checking out.l

Reply by Linda_H/FL on 2/18/12 3:41pm
Msg #412249

That convenience fee may not be exempt from SE taxes

it's a service fee and not part of the notarial act - I'd check with IRS on whether that's exempt or not..

We can charge a "modest travel fee" here too - but that fee is not exempt from the SE tax as is the notary fees.

Reply by Roger_OH on 2/18/12 4:03pm
Msg #412252

Make sure that taking the SE exemption is right for you...

Some extra bucks may sound good now, but you may want to consider the long-term effect of not paying into Social Security. Evaluate your own situation and determine what's best for you.

Reply by MW/VA on 2/18/12 4:04pm
Msg #412256

Yes, Roger. That is a very important consideration. n/m

Reply by MW/VA on 2/18/12 4:03pm
Msg #412254

Yes, Allen. I do charge a travel fee for GNW, but that is

included in the gross income I report on Schedule C.
The only thing that is allowed under the special exemption for notary fees from SE tax is
NOTARY FEES--not signing fees, etc.
I keep track of the # of notarization per signing, etc., total by week, month, & then year.
For example, if I had a total of 2,000 notarizations for the year, times $5 which is the fee allowed in VA, that would allow me an exemption from SE tax of $10,000.
We are the only profession that I know of that gets that special exemption. Waahoooo!

Reply by pat/WA on 2/18/12 4:09pm
Msg #412258

the way I would like

The way I figure it is a total of all the notarizations for the year times the $10 I am allowed per notarization.
Why does it have to be base on each signing individually? Why can't you lump them all together and have on subsidize the other?

Reply by John Tennant on 2/18/12 4:16pm
Msg #412262

Re: the way I would like

If you do not do it based on each signing individually then you are using non-notarization income as the subsidy. IRS does not allow this.

Reply by pat/WA on 2/18/12 5:14pm
Msg #412268

I guess I don't understand

If my total income for the year is gross $30,000 and my notary fees for the year ($10 x 4,000) is $40,000 where is the the other income that I have to included for SE tax?

Reply by Linda_H/FL on 2/18/12 5:29pm
Msg #412269

Re: I guess I don't understand...I guess I'm confused too

How can your notary fees exceed your gross notary income?

Reply by pat/WA on 2/18/12 5:41pm
Msg #412273

Re: I guess I don't understand...I guess I'm confused too

The amount allowed for a notary deduction is more than the income derived.
I have a CPA do my taxes so I will leave it up to him

Reply by Linda_H/FL on 2/18/12 5:44pm
Msg #412274

That's impossible Pat...can't be n/m

Reply by JanetK_CA on 2/19/12 1:34am
Msg #412297

Re: I guess I don't understand...I guess I'm confused too

Maybe some specific examples might help clarify this. Let's say that you do a signing for $100 that has 8 notarizations. You can eliminate $80 from your self-employment tax for that signing. And let's say that your next signing - also for $100 - has 12 notarizations. But since you only earned $100 total for that one, you can only deduct $100, not $120. Between these two signings, therefore, you can only deduct $180, not $200.

You're not allowed to average them out - and that's what you are doing if you just look at the total number of notarizations for a year, instead of recording it assignment by assignment. In real terms, you might have some assignments with only one or two notarizations and you might have others with 15, 18, etc. Once you hit the amount you were paid PER ASSIGNMENT, you can't count the rest of them for that assignment.

Your CPA can only go by the numbers you give him and he has no way of knowing how to figure out the difference, if you don't provide him the data. Besides, in my experience, I've always had to explain this to the CPAs I've worked with. And they usually have their clients sign an agreement that the client is responsible for the data provided to the CPA.

This topic comes up every year and is probably one of the most misunderstood aspects of being a notary.

Reply by desktopfull on 2/18/12 11:48pm
Msg #412294

Re: I guess I don't understand...I guess I'm confused too

Linda, they are calculating the value of the notary fees. If the value is higher than the actual income then you would not have to pay SE tax on your income from your notary business. However, be aware that not paying any SE taxes will effect whether you qualify for social security disability and reduce the amount of social security that you will qualify for upon retiring. There are a lot of variables to think about when making that decision.

Reply by Linda_H/FL on 2/19/12 6:44am
Msg #412301

What I don't understand is

how you can have $30,000 gross income and $40,000 in exempt notary fees - wouldn't the exempt fees stop at the gross income amount - you can't exempt more fees than you take in (sort of like gambling wins/losses)

Maybe that's what happening here, and IMO I think IRS may frown on this practice... not to mention this may result in the business not showing a profit, something else IRS scrutinizes carefully...

Reply by desktopfull on 2/19/12 9:07am
Msg #412305

Re: What I don't understand is

Here's how it works: You agree to do a closing for $100.00, there are 12 items to notarize in the package. In Florida, we are allowed $10 per notarization, so 12 times 10 = $120.00 value of notary fees. The value just exceeded what you are get paid.

Reply by Linda_H/FL on 2/19/12 9:20am
Msg #412308

I got that part...my point is....

you can only exempt up to the amount of the job..$100.00 - don't think your exempt income can exceed your gross income.

I may be wrong...and if so I'll own it and stand humbly corrected...but I don't think you can do it that way....if you get paid $100, and there are $120 "worth" of notarizations, you can only exempt the $100.00.

JMO

Reply by desktopfull on 2/19/12 1:26pm
Msg #412320

Re: I got that part...my point is....

That's why it's figured per job or closing that you complete.

Reply by Carolyn Bodley on 2/18/12 5:34pm
Msg #412271

Re:Pat, you only listed 3,000 notzarizations in the first

post -- now you are saying 4,000.

You can't claim signings and then break out the notarizations separately and claim them, too.

Reply by Carolyn Bodley on 2/18/12 5:37pm
Msg #412272

Re: Additionally, if you've never been audited in

your signing service, I see one in your future.

Reply by MW/VA on 2/19/12 11:00am
Msg #412316

Yikes, this is confusing to anyone reading it. First you

take your gross income less any expenses to arrive at a net profit. That is subject to income taxes.
It is the net profit that is subject to SE tax, not the gross income. In my situation, I end up with more notary fees than net profit, so it zeros out.
IMO the IRS would "red flag" you if you are claiming more in notary fees than gross income. In business, you can also only claim a loss for 3 years. After that you will be disallowed as it is considered a hobby.
I did tax-prep, prepare my own taxes, and know that this is how it works. ;-)

Reply by MW/VA on 2/19/12 11:04am
Msg #412318

I covered this in msg. 408297. :-) n/m

Reply by desktopfull on 2/19/12 4:34pm
Msg #412332

After having been audited for a 3 year period by the IRS &

getting in a world of crap (briefly, they took every dime I earned except for $257.52 per month until they were paid for back taxes, penalites & interest) over doing what you said in your message. I can say that you absolutely have to figure out each closings notary value and income received. If you go over in notary value you don't owe any SE tax on that closing. If you are under you must pay SE tax on the amount paid over the notary value.

The SE tax is based on what portion of earning made over the notary value for each and every closing. The only difference is if the net income is less than the total income earned above notary value then you pay SE on total net income. Otherwise, you have to pay SE on each closing that you exceed your notary value. IE: For Florida-- your paid $100.00, you notarize 2 documents--Value $20.00, you owe SE taxes on $80.00. They can not be offset from another closing that exceeds payment for notary value.

Believe me, it's not easy to survive on $252.52 a month. You don't want to go there.

Reply by MW/VA on 2/19/12 9:10pm
Msg #412353

Thanks for that info. That presents a record-keeping

nightmare. I use QB & there's nothing in the software to do that. How is anyone else handling that--an excel spreadsheet?

Reply by jba/fl on 2/19/12 9:26pm
Msg #412354

Re: Thanks for that info. That presents a record-keeping

I have a form I created listing common docs notarized and blank spaces to write in others; I add them up, write the total.
Then I write Job total: $100.00
Value of notarizations: 80.00
Income to claim: 20.00

Everything is cross referenced to the job/date.

Reply by Linda_H/FL on 2/20/12 4:47am
Msg #412367

Re: Thanks for that info. That presents a record-keeping

I mark each invoice at the top when it's created - "notarizations/balance" - so a $100 closing with 7 notarizations at $10/notarization would be marked "70/30"

Then I have a notebook and make columns - Date, Payor/file name, Total paid, Notarization fee, Balance" - each signing is itemized in that and columns are added up at year end for final numbers of amount paid, amount attributable to notarizations, balance.

Archaic, yes, but that's what's worked for me

Reply by MW/VA on 2/20/12 7:23am
Msg #412371

What gets me about this is that there's no way to prove the

no. of notarizations per signing, no matter what kind of records we keep. It is strickly up to the nos. we put down.
IMO I think the IRS is trying to do away with many exemptions, and this would certainly be one of them that they can make a nuisance of. I completed an advanced tax prep class, and I can tell you that the tax code is filled with tricks & traps, IMO.

Reply by Linda_H/FL on 2/20/12 7:51am
Msg #412373

The proof is probably in the journal...

My breakdown of notarizations vs. balance marked on my invoices matches my journal - in the journal in that little square that says "Fees" I mark it the same way - a $100 job with 3 notarizations is marked, on the invoice "30/70" and same way in the journal..."30/70"...and the notarizations listed match the "30"...or whatever the number is.

Reply by desktopfull on 2/18/12 11:51pm
Msg #412295

Re: the way I would like

When you get audited from the way you do your calculations I hope you have a lot of money in the bank to cover the interest & penalties that IRS is gong to charge you.

Reply by Glenn Strickler on 2/19/12 4:22pm
Msg #412330

You said it, Desk!!

I quit getting into threads on this subject any longer as it always goes in circles and my PM box gets flooded with questions. But you have the bottom line. The IRS will straighten them out when the time comes, and then they will have it right.

To newbies, I always advise to get professional help if this is your first time doing your taxes where you need to figure your income for performing the "notarial act". If you do it wrong once and are audited and found to owe more money, you have insured several audits in coming years. Perhaps several in a row.

Reply by desktopfull on 2/19/12 4:44pm
Msg #412335

Re: You said it, Desk!!

First hand experience. The school of hard knocks isn't exactly the best way to learn a lesson.

Reply by BrendaTx on 2/19/12 6:22pm
Msg #412344

Tax exempt notary income.

For posterity:

There is no such animal as tax exempt notary income. I know this has been batted around repeatedly and discussed in this thread, but this is a good place to situate the key words for searches.

Is notary income tax exempt?

Read IRS Pub 17.
Notary public. Report payments for these services on Schedule C or Schedule C-EZ (Form 1040). These payments are not subject to self-employment tax. See the separate instructions for Schedule SE (Form 1040) for details.

Can I claim a tax exemption for notary income?

Read IRS Pub 17.
Notary public. Report payments for these services on Schedule C or Schedule C-EZ (Form 1040). These payments are not subject to self-employment tax. See the separate instructions for Schedule SE (Form 1040) for details.

Reply by JanetK_CA on 2/19/12 9:28pm
Msg #412355

To take it one step further for newbies...

I'm a big believer in getting professional help (of all kinds, as appropriate... ), but you'll save yourself a lot of grief, and possibly money paid to your accountant, to say nothing of the IRS, if you track your records correctly and present your tax person with good info. If you haven't done so in the past, I hope you keep a journal so you still have the information, at least!

As much as it pains me to admit it, this is one area where I benefited from taking the XYZ certification course in the beginning. They sell a notary log to be used to track your business activities. I borrowed from that and created an Excel spreadsheet to track nearly everything I need to do my taxes and monitor my business activities. I have each assignment listed per row. Among other things, in one column, I enter the number of signatures completed per assignment (as allowed in my state), then have that multiplied by our allowed fee in another column. I didn't get as complicated as having it subtract anything over the fee amount, so I do that manually by just entering a number up to the amount of the fee, if the number of signatures times allowed fee exceeds the amount paid.

This isn't that hard to do (except for getting around to doing the data entry, for me... ), but it gives you good data and I imagine will also serve as documentation if you ever get audited. (I don't have it in a format that I can send to anyone, and I don't want to be accused of stealing intellectual property - I did modify it significantly - so please don't PM me for a copy.)

Do yourselves a favor and keep good records up front. It will potentially make your lives much easier when it comes to tax time!

Reply by jba/fl on 2/19/12 6:32pm
Msg #412345

I have a problem with this entire thread n/m

Reply by jba/fl on 2/19/12 6:40pm
Msg #412346

Nevermind - changed my mind. n/m