Reminder for the upcoming tax season

What I've Learned (Tips and Tricks)
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With the last 9 days left in 2020 (thank GOD! lol) it’s time to start closing out books and getting ready for the upcoming tax season. To that end I offer the following “tips”:

  1. Make sure you all have a Federal EIN - takes 5 minutes on irs.gov - all of your business income gets reported under that number - and that number is automatically tied to your Social Security number by the IRS.

  2. Make sure you’ve kept good records and know what notary income is exempt from Self-Employment Taxes - that would be your state allowed notary fee only - your full fee is taxable income but your state-allowed notary fees are exempt from self-employment income only. Many people have posted they were under the impression that anything they make as a signing agent (i.e. the entire fee) is not taxable…not true.

  3. Again, make sure you’ve kept good records - do not expect a 1099 (or whatever it’s being called now) from everyone you’ve done signings for; companies are only required to send a 1099 if they’ve paid you $600 or more in a calendar year - some send 1099s for everything, but some don’t. So keep good records of your income and don’t rely strictly on 1099s or assume if you didn’t get one you don’t have to report.

  4. Don’t forget all the exemptions you can take for self-employment income - business cards, cell phone, printer/scanner depreciation and purchases, office supplies, notary supplies, mileage, memberships, insurance costs, advertising costs,… the list goes on and on. If it’s something that’s related to your notary business, you can count it.

  5. If you’re going to claim “home office” deductions - be careful, that’s tricky;

Just some things off the top of my head - hoping this helps a bit and hope Howard chimes in to help in the upcoming tax season.

Happy Holidays!!

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Remember the notary exempt amount is a) limited to the amount you earn, not the Fee, i.e. Fee-expenses, and b) does not carry over to the next transaction

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Linda;

Great job. Thanks for the ‘shout out’.

  1. As records for self employment taxes, I put hash marks/numbers in the margin of my notary journal giving me the count of notary acts, so I can calculate the SE tax exemption.

  2. Your point on 1099’s is well-taken. I’ve represented more than my share of taxpayers who failed to include payments not reported on 1099-MISC. In many cases, the company making the payment is under examination/audit and their payees are matched against IRS files.

  3. I’d recommend stopping at the local Staples (or similar) to get a mileage log, as most people do not keep adequate records for vehicle mileage, tolls, parking and other transportation costs (if deducting actual costs like depreciation/lease and maintenance, those should be logged).

  4. Home office deductions are, in many cases, worthwhile. However, a couple of issues apply. First, the home office must be reasonably dedicated to the business; no sewing machines, exercise bikes (unless you work while spinning) or other personal use. Second, if the taxpayer owns the home, recapture of the depreciation (adding back the value of business use to one’s basis) allocated may be necessary when calculating capital gains upon sale. The best way to determine whether the H.O. deduction is worthwhile is to calculate the whole home cost (PITI, Utilities, Services/Maintenance, HOA fee) and multiply by the percentage of floorspace. *For example, a taxpayer may pay $2000/mo for PITI, 200 for utilities, $50 for water (totalling $27,000/year, plus $3,000 maintenance totalling $30,000/year) for a 2,000 sq. ft. home. The total of office space (10’x10’ office - 100 sq. ft. or 5%) would yield a $1,500/year deduction. Over a number of years, that can add up. The key is good records (I take pictures of my home office, including equipment, files, supplies and even the electronic lock/access control on it’s door for GLBA compliance.)

I would point out that I have an impeccable record on behalf of taxpayers in examination/audit, primarily because I research and substantiate all my positions, and go in with copious, organized records; this makes the tax agent’s job easier, earning goodwill when my client needs it most.

Happy new year, stay healthy and God bless,

HWB.

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Dan;

In fact, the SE exempt amount is based solely upon the statutory fee (‘public officer compensation’). Expenses do not enter into the calculation. The fees are cumulative and do carry over.

If a NY notary performs 2000 notary acts/year (250 closings at, for ease of example, $100 each), they would report gross sales of $25,000 on their Schedule ‘C’ (Income/loss from a business). Let’s assume that expenses reduce the business income to $15,000. Since a NY notary may charge up to $2.00 statutory fee per act/signature, the notary would indicate $4,000 exempt and $11,000 non-exempt income on their Schedule SE.

If you’re concerned about the accuracy of this information, I’d recommend researching it yourself in the Internal Revenue Code and Treasury Regulations. I’ve provided some citations in the linked thread below.

I’ve been a notary and an IRS Enrolled Agent for quite a few years, and I just want to clarify. I’ve sat for the Tax Bar and am going back to law school.

The only exempt income is the statutory fee, specified in state laws, for the notarial act. This amount may be limited by notarial act, document or session, depending upon jurisdiction. In most jurisdictions, it is an unspecified, ‘not-to-exceed’ amount. The exemption is provided for public officers receiving fees in the conduct of their duties.

The exemption is not for all income tax. Rather, the income is usually included in Schedule ‘C’, where it can be offset by expenses. The exemption only applies to the self-employment tax (Schedule SE), the rest (net of expenses if on is included in income

If a comprehensive fee (covering all activities and expenses), it is incumbent upon the notary to keep a record of how many documents/acts/etc. were performed, and base their exemption on those public officer fees.

A good discussion of this topic, with examples and citations, is made in this Notary Cafe thread (if I don’t say so myself).

I hope this is useful.

Happy holidays, stay healthy and God bless.

HWB.

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