Posted by sueharke on 1/14/13 9:18pm
Msg #450441

Separating notary fees and travel fees on a tax return

The solution to travel fees vs notary fees on a sch C. Create two Sch C's. One for travel fees only and deduct the miles and car expenses . Do not check the box as being a "notary public." How each notary determines how much income to put on this Sch C is a personal issue.

For notary fees, my software for schedule C has a box checkable as "notary public." Hence, the notary net fees would be exempt from self-employment tax.

I checked with the company that provides my professional software, Drake Software, and schedule C allows the exemption for notaries by checking this box. I used this exemption on my schedule C for notary work. I will gladly discuss via PM this issue if you wish.

If you are wondering why I am will to do this and not be paid as a CPA preparing the tax return, it is because I've seen too many people miss potential deductions because the law keeps changing. Considering how hard my fellow notaries work to keep and collect income, I don't see a reason to give it to the government.

Also, I have learned a lot from other notaries and it is my turn to share my specialized knowledge back.

If this post is a problem for other notaries, please complain to your tax preparer if you are not getting this deduction and wish to lower your taxes.

Reply by Michelle/AL on 1/14/13 9:31pm
Msg #450444

Thank you, Sue. I've been assuming that the CPA who prepares my taxes knows this but I'm going to double check.

Reply by parkerc/ME on 1/14/13 10:00pm
Msg #450446

Notary fees are only exempt on Sched SE, I believe.

I think you have to include them on you Sched C as business income.

Reply by sueharke on 1/14/13 10:12pm
Msg #450450

Re: Notary fees are only exempt on Sched SE, I believe.

Parker: reread my post. I said the "notary fees" on a sch c are exempt from SE, if you wish to not pay them. The "travel fees" are not exempt from SE. Therefore, separating the "notary fees" and "travel fees" allow the notary to take advantage of the federal tax law, if he or she wishes, to lower SE taxes. The SE taxes only apply to your Federal income tax return, not most state returns.

Reply by parkerc/ME on 1/14/13 10:31pm
Msg #450453

Re: Notary fees are only exempt on Sched SE, I believe.

I did reread and don't understand what Sched C has to do with notary fees exempt from SE tax, when the only place to record "exempted" notary fees are as a write in on line 3 of Sched SE (at least those were the lines for 2011) per the IRS instructions for Sched SE.

Reply by Marian_in_CA on 1/14/13 10:38pm
Msg #450454

Re: Notary fees are only exempt on Sched SE, I believe.

Yeah, I thought that that was a specific, separate deduction line as well... the notary SE deduction.

Of course, that's *IF* you choose to take it.... which, one should VERY carefully consider before doing. Saving a couple of hundred dollars (or less) in SE taxes may end up costing you THOUSANDS if you aren't prepared and become unexpectedly disabled and need to rely on those credits for disability insurance before you come close to needing Social Security in retirement. Exempting yourself from those credits can be disastrous - tens of thousands of dollars worth of disastrous.

And I say that from personal experience.

Reply by parkerc/ME on 1/14/13 10:44pm
Msg #450457

Re: Notary fees are only exempt on Sched SE, I believe.

Amen, Marian! I didn't have enough SS credits when I retired from government service and paying that extra into SS as a signing agent made up for those missing credits.

Reply by sueharke on 1/14/13 10:48pm
Msg #450458

Re: Notary fees are only exempt on Sched SE, I believe.

Marian, you are correct and I agree with your analysis. Some people don't want to pay taxes for whatever reason and if this is his or her choice, then this is the legal way to not pay taxes.

I present notary clients with both your analysis and the answer is frequently "I don't want to pay the taxes." Hence, I help the client achieve his or her goals.

At least this is a personal choice and personal choices have a way of coming back and telling us later that is was not the right decision. In the end, I like your decision as it is the right one for you <big smile>.

Reply by Marian_in_CA on 1/14/13 11:19pm
Msg #450464

Re: Notary fees are only exempt on Sched SE, I believe.

Heh... in our case, we found out the HARD way. Not as a signing agent... but my husband worked for a University police department when we were students. At the time, we didn't even realize that student work on campus was automatically exempt from paying in SS. The amount was rather negligible that we didn't pay in... I mean, we were students, but he had that job a good long time. And now, in case anyone wonders... there were no other benefits, either. Students were just straight exempt, he wasn't paying in to a state fund either. We kind of just thought that they didn't take anything out because he didn't earn enough. We were kind of dumb.

But then he had an accident and became disabled... way too young, and now cannot work.

We learned the HARD way that all those years he worked didn't earn him anything toward SSDI, though had we been told or known, we could have told the school to pay it, or we could have paid it ourselves, but we were dumb kids and didn't even realize what was going on, nor the consequences of it.

It took years, and many appeals to get any benefits for him. His attorney, and even the judge on the case worked miracles to make it happen. There was no question as to his disability, they were getting around the credits and eligibility issues, even though he worked a full time job for years.

When all was said and done, the lawyer said we lost what amounts to 5 very large figures of a lump sum benefit that were adding up during the process in order to get what he has now.

All for what was maybe a couple of thousand dollars of taxes that he didn't pay in because we had no idea how it all worked.

Nobody expects to become disabled... but it can and does happen. I tell people this every year... unless you're prepared to care for yourself in the event of an immediate disability, saving a coupe hundred in taxes may not be the wisest decision unless you otherwise have a full-time job and your 4 credits per year are all paid up. Of course, if you've paid up enough to earn the 4 credits, I suppose you can exempt all you wish, though I think it still reduces the overall total amount of money you'd get, too.

Reply by Susan Fischer on 1/14/13 11:10pm
Msg #450461

Second Marian's sage advice. Choose wisely, indeed. n/m

Reply by Susan Fischer on 1/14/13 11:12pm
Msg #450462

Second Marian's sage advice - choose wisely, indeed. n/m

Reply by Susan Fischer on 1/14/13 11:12pm
Msg #450463

Oops. Sorry. n/m

Reply by sueharke on 1/14/13 10:42pm
Msg #450456

Re: Notary fees are only exempt on Sched SE, I believe.

Some tax preparation software allow a check box for "special categories". In this case "notary fees" are in this category. Once you subtract the expenses from your income, you have net income. The net income from notary fees are exempt by federal law from SE tax.

My software, Drake Software, automatically puts this exemption on sch SE to reduce SE taxes. Depending on the tax software that is used, this may be an automatic computation and you do not have to make the adjustment yourself.

If you do not have access to software that will allow you to check the box, PM me for online preparation software that will do this when the sch C is prepared.

Reply by parkerc/ME on 1/14/13 10:40pm
Msg #450455

Re: Notary fees are only exempt on Sched SE, I believe.

I think what had me confused, now that I look again at your post, is that it's your tax software that is presenting that notary fees option on it's Sched C questions, not the Sched C itself. I'm an old schooler and do my taxes myself without a tax program (but have my financial guy review).

Reply by parkerc/ME on 1/14/13 11:31pm
Msg #450465

At least one thread on this subject, see Msg 412235

There's been a lot of discussion on this subject this time last year...and since. IF I were into using a tax program, from the discussions on this forum, it sounds like Turbo Tax would be my choice. Perhaps my kids will use that for me after they put me into a nursing home, when I not only no longer know how to do my taxes, but I don't know where I am! ;-)

Reply by sueharke on 1/14/13 11:37pm
Msg #450467

Re: At least one thread on this subject, see Msg 412235

Look at message Msg #450203 for a recent discussion on why Turbo tax does not allow this feature.

Reply by parkerc/ME on 1/15/13 7:25am
Msg #450476

Just another reason why I do my own without a tax program. n/m

Reply by Clem/CA on 1/15/13 9:49am
Msg #450478

Re: Making it to hard

You can override any number in Turbo Tax, so just deduct the notary income from the Se form entry box in form mode, and write a letter of explanation to add to you return.

Reply by sueharke on 1/15/13 12:27pm
Msg #450521

Re: Making it to hard

The last time I followed that instruction for my notary income not subject to SE, I got a letter from the IRS asking why I made the adjustment. I wrote back at least twice that this was notary income not subject to SE. Just goes to show the quality of IRS employees who read the notes attached to a return.

Also, the Social Security Administration did not understand why I was reducing my income for "notary fees" when I wrote a note on my income tax return. I hope everyone else who uses this approach has better success.

Reply by MW/VA on 1/15/13 10:31am
Msg #450486

Thanks for the tip, Sue. n/m

Reply by bagger on 1/15/13 10:55am
Msg #450491

I really wish the gov't would stop calling SS payments "tax"

When in reality it is payment into an insurance policy.
Therefore, it is NOT an "entitlement", it is a disbursement of an annuity.