Posted by TacomaBoy on 10/11/12 4:30pm
Msg #438138

IRS Question?

The IRS allows notaries to exclude Sch C income derived from notary activities, less any expenses allocated to the notary activity; this lowers Self-Employment taxes. Allocating business expenses in this manner "increases" self-employment taxes. So what is a good allocation of total biz expenses? 10/90, 30/70, 50/50, etc.? This could be a nightmare trying to figure out the detail of this procedure!

Reply by Pro Mobile Notary on 10/11/12 4:45pm
Msg #438140

You are very confused about what the law allows and the ramifications of various actions.

You aren't really considering following the advice of non-CPAs in the matter are you? It could be painful when you get audited.

Reply by Pam/NM on 10/11/12 4:50pm
Msg #438141

I am not at accountant but my niece who is advises me that I may exempt the amount per notarization allowed by my state, in my case $5 each act. You do need to be aware that by so doing you are impacting the amount of any future if any Social Security income you may receive.

Reply by sueharke on 10/11/12 4:55pm
Msg #438142

Writing this reply as a CPA. You are allowed to exclude the income from notary fees from your self net employment income as notary. The travel fee income cannot be excluded. There is no set percentage, just the actual amount.

After deducting all expenses, your net income my be only notary fees, then there is no issue. The only warning is to be able to prove the excluded income is only notary fees, not anything else if audited.

The advantage is more money in your pocket due to less taxes paid. The disadvantage is if you retire, you do not get any social security benefit from those excluded notary fees. The government giveth and taketh away. Which is best for you?

Reply by Marian_in_CA on 10/11/12 5:38pm
Msg #438152

The other disadvantage that a lot of people don't think about is that you lose credits that could apply toward disability insurance (SSDI) should you need it prior to retirement - you know, just in case you have a major accident or disability happen. If you lack enough work credits by claiming exemptions you might just be eliminating yourself right out of any SSDI benefits, or reducing them greatly.

I tell you this not out of professional advice or anything but from personal experience with the system. Trust me, those credits can mean the 5 and even 6 figures difference in the money you could receive over saving very little money. Not kidding.

Reply by Barb25 on 10/11/12 7:09pm
Msg #438171

It really depends when you started in this business and whether you need the credit.

Reply by TacomaBoy on 10/11/12 5:01pm
Msg #438143

IRS Question?

Good answers from everyone! Thank You!

Reply by VT_Syrup on 10/11/12 7:14pm
Msg #438173

Re: IRS Question? Surviving children

Don't forget that surviving children who are still in school get a benefit if a worker dies before retirement. I had the misfortune of receiving those benefits when I was a kid.

Reply by MW/VA on 10/11/12 9:42pm
Msg #438220

This was discussed at length last year. I've been told

that most notaries keep a separate form, and list each signing less the allowable amt. for notarizations for that signing. I still don't get that, because that would figure the S/E tax before expenses. I think I've also heard of some who don't even take that deduction because of the record-keeping involved. It's more complicated than it seems. Let's remember who writes the tax code. I was a tax-preparer, and it blew my mind how complicated formulas can be for depreciation or profit-loss from stock trades. Yikes!!

Reply by sueharke on 10/11/12 10:51pm
Msg #438246

Re: This was discussed at length last year. I've been told

Another aspect some notaries don't consider is to keep accounting records of income and expenses, separate from using only 1099's for income tax return. Trusting a company to send correct 1099's may cause the necessity of an amended return if he or she receives an amended 1099. Some companies do not send 1099's!

Since everyone on this forum is an independent contractor, be warned that good accounting and record keeping will keep the hands of the IRS out of your pocket. Also, in case he or she does not receive a 1099, the income from the notary signing is income to be reported on your schedule C (for a sole proprietor). Somehow the taxing agencies manage to find the unreported cash...

Reply by VT_Syrup on 10/12/12 7:58am
Msg #438273

Re: This was discussed at length last year. I've been told

The reasoning seems to be that we should deduct on Schedule SE our NET notary earnings for performing notary functions where the fee is set by the state. It seems there is a lot of room for opinion about which of our expenses are related strictly to our state-specified notarization fees. The seal, certainly. The commission fee, notary classes, bond if you have it, E&O if you have it. Some small percentage of our pens. The cost of creating or buying loose certificates. Mileage expense only if there is a state-specified travel charge. What about a fraction of the advertising expense? If there are no state-specified mileage charges and you don't think advertising should be included, I think it would be too small to measure except in years where you pay for a seal, bond, commission, notary class, or E&O policy.