Four Last Minute Tax Tips for Notary Business Owners

Greetings!  There are only a few days left until April 15, 2019.  

Social media and forums are buzzing this week as frantic new notary business owners sort out their first tax seasons. 

Just like in previous years, legends and myths flourish about how to treat notary income on tax returns. 

The most dangerous statements go something like this: “Notary income isn’t taxable.”

Hold on, friends!  That’s not exactly true, and that’s why we are talking about this today. 

The focus of today’s article is notary public income. 

This article is not meant to provide tax advice, but to help you identify resources to help move your tax return forward.

If you have waited until the last minute to collect your tax information, you may have noticed that you are now faced with a complicated puzzle.  While there are many sources to help you identify deductible expenses of your notary business, nailing down credible information on how to treat notary income is a bit different. So, let’s take a look at the tips below to help you sort this out before the 15th of April (or as soon as possible)!

 

Tip #1 – Find a source you can trust for advice on notary income, small business income tax preparation, and self-employment tax as these topics relate to you.

Perhaps you’ve deciphered that your notary fees may be exempt from self-employment taxes.    If this is your first tax season with your notary business, I recommend that you get solid advice on the meaning of the term “notary fees.”

There are other questions that you may also need to consider. 

Should you go ahead and pay the self-employment tax on your notary fees rather than taking the exemption?  Will it benefit you to pay now to support needs you may have in the future?  What if  you are disabled by an accident or illness and need to apply for disability income?  How will your choices today on this topic affect you at retirement age and your Social Security benefits income?  These are important questions and I encourage you to find a tax professionals who can address this for you. 

While you are seeking a tax professional, be aware that  IRS.gov is an outstanding source for publications. Become familiar with how to use the IRS’s website.  I may be overstating the obvious to say this, but there’s no better source than the actual source!  

The self-employment tax exemption that you’ve heard about is described in this publication: 2018 Instructions for Schedule SE.  The IRS provides a list  “Income and Losses Not Included in Net Earnings from Self-Employment.”   Underneath that heading is this statement which should explain it all to us.:

“2. Fees received for services performed as a notary public. If you had no other income subject to SE tax, enter “Exempt—Notary” on Schedule 4 (Form 1040), line 57. Don’t file Schedule SE. However, 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.”

Sounds a lot like gibberish the first time you read it, doesn’t it?  Read it five or ten more times.  It might still sound like gibberish.  If so, move on to Plan B.

 Plan B – Finding a Tax Professional

If the IRS text above doesn’t make sense to you, don’t feel bad.  It’s hard to understand if you haven’t had to use a Schedule C or Schedule C-EZ in the past.  And, there are many doctors, lawyers, engineers, and other scholarly types who would say that it is pure gibberish. 

It’s time to find a professional. 

Print out the Schedule SE instructions referenced above and find a CPA or an IRS Enrolled Agent  to help you.  At the Enrolled Agent link, you will be able to download a spreadsheet with over 60,000 Enrolled Agents.  Open it up and look for one in your city.

What about storefront tax preparation shops? 

It’s worth mentioning that some notaries have great luck with storefront tax businesses like H&R Block, Jackson-Hewitt, Liberty, and other tax franchises. If that’s the route you choose, take the Schedule SE instructions with you and ask for someone who is familiar with notary fee income.

What about tax software?

I like Tax Act; others say that Turbo Tax is the best. I have used both.  I have never had a problem with either one of these.  Both of them ask  questions until your entire return is complete.  However, neither of them replace the advice of a tax professional nor make clear how to manage the notary fee exemption.  If it is your first time to do this, consider hiring a tax professional.

 

Tip #2 – If you can’t get advice or assistance from a professional or figure out what you need to do on your own before the deadline of April 15, don’t panic.  Consider filing an extension.

Read about extensions at this link.   Here is the actual form for  standard individual filers:  FORM 4868 , Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.

If your application for extension reaches the IRS in time, an automatic extension of time will be granted so that you do not have to file your return until October 15 of the same year.  That doesn’t mean that you don’t have to pay interest on unpaid taxes that you owe. The IRS always wants its money.  The reason to file an extension is so that you are not penalized up to $205 for ignoring the deadline of April 15, 2019 on top of other amounts you may owe if you did not make quarterly tax payments. 

After you file your extension, be sure to see a professional as soon as you possibly can.

 

Tip #3 – If you receive your tax bill, and you owe more money than you can possibly pay on April 15, don’t panic about that either! 

Remaining calm is the best way to handle a financial crisis.   The IRS has payment plans.   Check out this section of IRS.gov to learn more.  

As soon as you can, consult a tax professional about better planning strategies for April 15, 2020.

 

Tip #4 – The worst place to get tax advice is from strangers on the internet.

If you run across someone who seems to know about taxes and notary income, ask him or her if there is an IRS publication that you can read to learn more about the questions that person is answering.  If he or she doesn’t  provide a link to a credible source to back up the advice he or she is giving out, you may have encountered a know-it-all who simply likes to be admired by notaries.  It happens!  

Also, if the person claims to be an IRS Enrolled Agent, look him or her up in the spreadsheet referenced in Tip #1 or ask the IRS about the person’s status as an enrolled agent—you should be able to verify status online.

Don’t assume anything is true.

Several years ago, a notary public claimed that she didn’t pay self-employment tax on her total notary signing agent income.  She thought that was what “fees” meant–all of her notary income as a notary signing agent.  She told me that the IRS sent her a tax bill for $5,000 to be paid because they didn’t agree that all of her notary signing agent income could be claimed.  Some of that, of course, was penalties and interest.  I think that this is probably a true story.  However, I have no proof! Even this could be a myth, exaggeration, or urban legend.  I met this notary online.  Of course, I believe she was real.  I believe she was telling the truth, yet, I didn’t see a  tax bill from the IRS or the notary’s tax return, so I really don’t have proof of this. 

I’m suspicious by nature.  Some people will pretend to be an expert because it makes them feel good.  They may make up crazy situations like this to get sympathy.  We really never know what’s true if someone claiming to be a notary says it on a forum or in social media discussions.

How silly would we feel trying to explain to the IRS that a notary we never met told us how to do our tax return? 

The IRS doesn’t care what our motives are for completing false or inaccurate tax returns.  We are ultimately responsible as individuals for what we report on our tax returns.   Always go to a credible source or professional adviser that you can depend on if you find yourself in trouble in the future over something as important as paying taxes.  

We appreciate our readers’ input!

Feedback is always welcome!