Time flies when you're busy notarizing documents! Before you know it, April will be here which means it’s time for self-employed Notaries to get their income tax returns ready. If your mind is racing with questions and stress levels are rising, take a deep breath, calm down, and read on. We have some valuable information that can clarify your tax questions and save you thousands of dollars in the process!
Notary Fees and Self-Employment Tax
According to IRS Publication 17 (and assuming you are a sole proprietor or single-member LLC), all fees received specifically for notarial acts should be included in gross income — the amount of money received before anything is deducted — on a Schedule C (Form 1040.) Now remember, as a Notary, you cannot charge or receive a fee for services over the maximum amount prescribed by state notary laws (which you can consult with ASE Group about to determine). Some additional fees that you may be eligible to charge for include mileage/travel expenses (which differ by each state) when going to a signer’s location.
But when it comes to your taxes, there’s a big distinction you should be aware of with your ordinary income vs. other services or fees you charge. Notary fees are considered taxable ordinary income and ARE NOT subject to self-employment tax (which you can read all about in last week’s Self-Employment Tax post.) To refresh your memory, self-employment tax consists of Social Security and Medicare taxes primarily for individuals who work for themselves. But if you charge other fees, or offer other services, they are subject to both ordinary income tax and self-employment tax. For example, a notary has a notarial services business that earned $9,000 last year. Two thousand of that was attributable to fees earned for specific notarial acts (acknowledgments, oaths/affirmations, etc.). The $2,000 would be exempt from self-employment tax, but the remaining $7,000 would be subject to self-employment tax. If your net self-employed earnings are less than $400, then you are not required to pay self-employment tax (Instructions, Schedule SE (Form 1040), Internal Revenue Service).
You must be able to differentiate between the notary fees and the other fees/services in order to exclude the notary fees from self-employment tax. This is where good record keeping is crucial! If you intend to deduct your mileage or travel expenses for mobile notary assignments, you should be keeping a detailed mileage log to show the date, miles traveled, and assignments (on paper or electronically - although electronically is a lot easier to maintain and access). Need a sample mileage log? We’ve got you -- click here to download.
Let’s not forget about the expenses that are deductible on your tax return. Expenses for travel to customers’ homes or businesses, notarial supplies, seminar tuition, notary association membership fees, and Errors and Omissions (E&O) insurance are all common deductible expenses relating to your business. Even the cost of your bond for the year may be deducted on Schedule C. Just remember, in order to deduct expenses for your services, you must have purchased the supplies and/or services for your business - not your employer.
If you are a mobile notary, keep in mind that your ordinary & necessary travel expenses are deductible, but will require documentation. For some, notary fees might be your only form of self-employment income, to which you can write the words “Exempt-Notary” on line 58 of Form 1040.
Notary Signing Agent
If you are a notary signing agent and receive more than $600 per year from any one company/client, that company/client will likely send you a Form 1099MISC at the beginning of the following year. Keep in mind, you may not receive a 1099MISC from every company for which you perform notary services; however, you are still required to report all income earned on Schedule C. You also are required to file a Schedule SE if the signing agent portion of your business minus the notary fees earns a profit of more than $400.
To leave you with one final thought - You can optionally elect to consider paying self-employment tax on your notarial services that are treated as ordinary income and generally exempt from self-employment tax. Doing so further contributes to your Social Security and Medicare for your later years. ASE Group can help you determine what works best for you and your business, and ensure you’re classifying your income accordingly. Interested in speaking with one of our highly trained CPAs? Schedule a consultation today!