I have a quick question…
If you do a notary on your own behalf for $40 ($15 for the signature, $25 for the travel), and you do 10 mile round trip…how much should you set aside for taxes?
BTW, this is not about why the travel fee is so low etc etc. It’s an example.
Your gross income for the job is $40. Subtract $5.35 for travel expenses (assuming you use the IRS rate rather than actual auto expenses; you can also subtract tolls and parking, if any). So you profit before subtracting a share of other business expenses is $34.65. Of course, when you do your taxes, you won’t figure out the net profit from each job, you’ll add up all the gross income and then subtract all the business expenses (travel, stationery, notary commission fees, E&O insurance, etc.) to come up with a net profit for the year.
You could essentially do the computation over again, but count the gross income for this job as $25, for US Social Security Tax purposes, because the $15 notary fee doesn’t have to count for social security, if you don’t want it to. But if you want the benefits of a higher social security income (higher retirement income, disability income) you could just stay with the $40 gross income for the job.
Thanks Ashton. So if you dont want to include the notarization fees ($15) you dont have to? Meaning, if I did 4 notarizations ($60) + $25 for travel, I could fully keep the $60 without reporting it?
There are at least three separate taxes: US income taxes, CA income taxes, and US social security taxes. The notary fees can only be excluded for US social security taxes; the income taxes still have to be paid on the profit portion of the $85 ($60 for notarizations and $25 for travel).
You can figure out what your travel expense is for one transaction; most people use the IRS rate ($0.535 per mile). But you don’t know what your other expenses are because the year isn’t over yet; all your expenses get added together (like seal, notary commission, stationery, etc.)
Hopefully you aren’t using the $0.535 per mile to decide what travel fee to charge. That only compensates you for the expense of owning and driving a car; that’s break even, and you don’t want to break even, you want to make a profit. So you should charge a travel fee that not only covers your expense of having and using a car, but reward you for the time and effort of driving.
Thank you for that. I appreciate it. Ideally, what is best to put aside for taxes? I am currently putting away 20% of the $85 from the top without discounting anything else. So, if I were to charge $100 that included notarization + travel, I will put away $20 for taxes.
There are two concerns. First, avoiding a penalty for not paying enough tax during the current year. Intuit, the publishers of TurboTax, have a web page about that.
The second concern is having enough money saved, come April 15, 2019, to pay the taxes you owe. It’s wise that you are putting some aside. The amount to put aside depends very much on your other income. For example, if you are an employee with tax being withheld and notary work is a sideline, you’ll get one result. If you don’t have another job beside being a notary, but have lots of dividend and interest income, you’ll get another result. If you’re married filing jointly, your spouse’s income will influence the results.
I would suggest using last year’s tax forms and compute two hypothetical returns, one as if your notary business didn’t exist, and one where you suppose the rest of the year will be similar to what you’ve done so far this year. Carefully follow the instructions for excluding your notary fees from the social security tax computation (but not the income tax computation), IF you want to do that exclusion. Then see how much difference there is in tax between the two returns.
Finally, figure how much that tax difference is as a percent of your notary income. Suppose it comes out to 13%. So you set aside 13% of every check you get and keep it for taxes. If the amounts are large enough to worry about penalties, make estimated tax payments as suggested in the Intuit web page.
If you’re lucky enough that the amounts involved are large (whatever “large” means to you) you should talk to a tax professional now to find ways to save on taxes and/or avoid penalties.