Posted by pat/WA on 4/13/13 3:06pm
Msg #465555

Self Employment tax

I just received a letter from IRS that states I am liable for Self Employment tax.
Does anyone know where I can find the IRS rule that exempts notaries for this tax?

Reply by bagger on 4/13/13 3:14pm
Msg #465557

Uh, Notaries are NOT exempt.
The charges for a notarization are exempt.
E.g. In Illinois, we are allowed to charge $1.00 per notorial act.
The average refi has 5 "notorial acts."
So, say you get $100.00 for a refi.
You owe SE taxes on $95.00.
Is it worth it?

Reply by pat/WA on 4/13/13 3:21pm
Msg #465559

It has been my understanding that notary fees and all expenses incurred are exempt from self employment tax.
This was covered in an earlier post

Reply by Linda_H/FL on 4/13/13 4:17pm
Msg #465562

Notary fees - the fees you can charge as set by

your state statute - all the other ancillary charges are income and reportable/taxable.

Here in FL we can charge $10/notarial act. In the other example, a signing with 5 notarizations and a $100 fee would only have $50 subject to SE tax - the NOTARY FEE portion is exempt.

Now, that's just SE tax - all of your income is taxable on a federal, and possibly state, level.

Reply by sigtogo/OR on 4/13/13 9:12pm
Msg #465591

yes, and theres the $100 signing where there are 10 notariza

tions. so then you would have a loss on that job. but since we compute our gross income minus all expenses and then have the notarial exemption, its possible to have no S/E tax.

my take
see below for more

Reply by bagger on 4/13/13 4:42pm
Msg #465568

Pat, with all due respect, you are mis-informed n/m

Reply by sueharke on 4/13/13 4:58pm
Msg #465572

I am responding to this post as a CPA. As the earlier poster said "only the notarization fee is exempt from SE tax" is correct. Who did your tax return? Did the tax preparer confirm your understanding? Do you prepare your own income tax return?

Reply by John E. Rogers on 4/13/13 4:16pm
Msg #465561

I cannot find the specific reference either however, for the past years, I have deducted notarizations on Schedule C, Part I, line 2, Returns and allowances, and then always explain in an attachment the amount of income from strictly "notarizations". You can then deduct those fees from line 1 or total NSA income from 1099 forms.

Instructions for 1040 tell you to refer to Schedule C; but Schedule C instructions do not seem to speak to notarizations "specifically"; you have to extrapolate from the IRS verbiage and "hope for the best". IRS has accepted this, with a valid explanation of course, in the past, but for this year and forward...? Who knows.

If anyone finds specific language in IRS instructions that speak to "notarizations", please advise.

jer/oh

Reply by Sylvia_FL on 4/13/13 4:31pm
Msg #465565


http://www.irs.gov/publications/p334/ch10.html

Notary public. Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ but are not subject to self-employment tax (see the Instructions for Schedule SE (Form 1040)).

Reply by sueharke on 4/13/13 5:02pm
Msg #465573

I am responding as a CPA. The method of deducting notarization as returns and allowances is incorrect. The effect is to reduce your total taxable income by notarization fees. The notarization fees are subject to income tax, not SE tax, but by putting the amount on line 2, that is an unacceptable adjustment to total income. Look at the instructions for the form SE and earlier discussions in these forums on the subject.

Reply by John E. Rogers on 4/14/13 4:44pm
Msg #465652

Thanks for the info; perhaps you can answer this question...if total income on Schedule C , line 31 is negative, so that no SE tax is required, where does one reduce income for tax purposes to account for non-SE tax on notarizations? Or, does one simply pay tax on notarizations as income even though not liable for SE tax due to SE losses? Thanks. jer/oh

Reply by JENNY/TX on 4/13/13 4:32pm
Msg #465566

Go to page 5: Page 5 of 6 INCOME AND LOSSES NOT INCLUDED IN NET EARNINGS

http://www.irs.gov/pub/irs-pdf/i1040sse.pdf

I think the only monies that can be excluded from SE tax is the fee for the actual act ,i.e. in Texas - $6.00. So if you notarize 5 docs you can exempt $30.00 from the overall fee charged - $125 - $30 = $95.00 that will be taxed.

Hope this helps.

Reply by pat/WA on 4/13/13 4:41pm
Msg #465567

Everyone on this board has been arguing about this for years.
For me I don't want to pay anything more into social security than I absolutely have to. I paid into it for 50 years and I consider it a non-interest bearing loan to the government. There is no way I can live long enough to get back what I have paid in to it.
Since I paid it I do not consider it and Entitlement.
Now I will get off my soap box

Reply by John Tennant on 4/13/13 4:46pm
Msg #465569

Pat, everyone that has responded in this thread to you are correct. I have been an EA for quite a few years and have to answer this question many times annually. The answer has never changed. The actual fees that your state allows you to charge are exempt from SE taxes only. All other net income annually is subject to SE taxes.

Reply by sueharke on 4/13/13 5:05pm
Msg #465574

Good reply John. I think we have both quietly counted to 10 over some of the deductions clients want to make when completing tax returns.

Reply by Doris_CO on 4/13/13 6:25pm
Msg #465581

Pat/WA, find a tax professional familiar with Notary Public income, and have them go over your tax return. You don't want IRS coming after you for non-payment of taxes.

Reply by sueharke on 4/13/13 7:26pm
Msg #465586

Doris, great reply. Pat/WA, feel free to PM me if you want help reviewing your income tax return -- Susan F Harke --also a CPA.

Reply by sigtogo/OR on 4/13/13 9:07pm
Msg #465590

My CPA's take: I have no S/E income to report

I love seeing these discussions and haven't really joined in since I know some are quite passionate in their view

I haven't actually seen my return yet but what if:
Oregon allows $10 per notarization. so for discussion purposes lets assume:
avg of $!00 per job, 6 notarizations
300 jobs/year. S/E notary exemption would be 6 x 10 x 300 = 18,000
$30000 gross for the year less expenses leaves balance subject to fed/state tax. if net is less than $18k then there would be no S/E tax. seems it could certainly be the case that expenses could total $12k, or 40% for the year if someone chose to maximize expenses.

here are all the IRS publications I founds addressing notaries:

Publication 17, page 932
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.

Schedule SE instruction, page 5
2. Fees received for services performed as a notary public. If you had no other income subject to SE tax, enter “Exempt—Notary” on Form 1040, line 56. Do not file Schedule SE. How-ever, if you had other earnings of $400 or more subject to SE tax, enter “Exempt—Notary” and the amount of your net profit as a notary public from Schedule C or Schedule C-EZ on the dotted line to the left of Schedule SE, line 3. Subtract that amount from the total of lines 1a, 1b, and 2, and enter the result on line 3.


Tax guide for Small business,
pg 40: Notary public. Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ but are not subject to self-employment tax (see the Instructions for Schedule SE (Form 1040)).

Self-employment tax. You can deduct the employer-equivalent portion of your self-employment tax on line 27 of Form 1040. Self-employment tax is discussed in chapters 1 and 10.

Page 9: Deduct the employer-equivalent portion of your SE tax as an adjustment to income on line 27 of Form 1040.

Reply by desktopfull on 4/13/13 10:07pm
Msg #465597

Re: My CPA's take: I have no S/E income to report

Based on your CPA's take, I don't want to be in your shoes when the IRS comes knocking on your door with an audit!

Your example: "...avg of $!00 per job, 6 notarizations..."
You would owe SE taxes on $40.00 per job. You only get to exempt the value of your notary fees which is only $60.00.

Reply by ToniK on 4/13/13 10:49pm
Msg #465598

That's why I hired an EA. just in case of an audit n/m

Reply by Robert522TX on 4/13/13 10:53pm
Msg #465600

Re: That's why I hired an EA. just in case of an audit

What is an EA?

Reply by ToniK on 4/14/13 6:54am
Msg #465615

Re: That's why I hired an EA. just in case of an audit

Enrolled agents (EAs) are Tax Specialist. EAs are the only federally licensed tax practitioners who specialize in taxation and also have unlimited rights to represent taxpayers before the IRS.

Reply by John Tennant on 4/13/13 10:54pm
Msg #465601

Re: That's why I hired an EA. just in case of an audit

It is really very simple.

Annual gross income = $30,000. Total expenses = $20,000. Net profit subject to State and IRS taxes = $10.000.

Of the $30.000 gross income, $10,000 is from Notary signing fees. This $10,000 is subject to an SE tax exemption. That is if you want it exempted. You do not have to.

Reply by John Tennant on 4/13/13 10:56pm
Msg #465602

Re: That's why I hired an EA. just in case of an audit

Make that State and Federal Income Taxes.

Reply by sigtogo/OR on 4/14/13 1:04am
Msg #465607

um, no. I would not owe SE tax on $40 per job. SE is based

on net income, not gross income. if my expenses were 40% of the job, then my profit would be totally notarial profit and therefore not subject to SE tax. I am not saying this is my circumstance but based on the scenario presented.
I don't know about you, but my auto expense is significant and I also take a home office deduction since I truly have a room that is completely devoted to business. when you add those to all the other expenses, there could easily be some years were 40% expense would be reasonable.

I am curious to know if you make better than a 60% profit on schedule C?

Reply by sueharke on 4/14/13 1:21am
Msg #465609

Re: My CPA's take: I have no S/E income to report

I am responding as a CPA and notary. I would do a ratio to determine net income due to notarization work. I would break the amount exempt from SE as (18000/30000=60%), next take a deduction of 60% of the expenses against the notarization income. Subtract the expenses from the $18,000 to get net income NOT subject to SE.

I would do the same for income due to other income not due to notarization. This income would be subject to SE tax.

Reply by Tudi/CA on 4/14/13 3:42am
Msg #465612

Re: My CPA's take: I have no S/E income to report n/m

Reply by walthtz on 4/14/13 2:30pm
Msg #465641

Hello
Go to this Publication: http://www.irs.gov/publications/p17/ch12.html
about 2/3 the way down you will see a group called Noatry Public.
Click on that & answer solved.
This is the federal Forms.
Walter in NJ.