The end of the year will be upon us before we know it. Black Friday promotions, holiday decorations and cold weather serve to remind us that the end of the year is fast approaching. Along with making preparations for holiday and family gatherings, notaries may want to begin planning ahead for the upcoming tax filing season by making sure that detailed records of any invoices, bank statements, receipts, and 1099s will be in place for a timely and smooth filing.
The type of notarial services you provide, whether an occasional notarization for a friend or neighbor, an active vibrant notary signing business or workplace notarial tasks will determine how much additional planning you must do to be ready at tax time. If you perform notarizations infrequently, chances are that you may not have any major considerations at tax time. On the other hand, if you have a very active notary business, tax time can cause chaos. There are things you can do to make your life, and that of your accountant or tax preparer, much easier when tax filing season begins.
Organizing Your Notary Expenses Records
Review your notary expenditures and purchases for this year. Did you purchase new notary stamps? Did you renew your notary commission and pay the renewal fee? Did you purchase notary errors and omissions insurance? Were you required to replace a notary record book or notary journal? These are common expenses for notaries.
However, if you provide mobile notary services, you will also need to have a log of all notary service mileage and transportation expenses, whether they are gasoline, tolls, or car rentals. If you've been negligent in keeping a consistent log, plan to rectify this by purchasing log books and ledgers for your accounting needs in the New Year, or keep digital records.
Notaries are allowed to deduct for the tools they use to provide services to the public, so calculate what you have spent for copy and printing services, as well as any office equipment you may have purchased for your notary business needs. Don't forget to include landline phone and mobile phone expense, internet fees and postage. Marketing materials to promote your business such as business cards, websites and window signs should also be added to the list of expenses. While all income generated must be reported, the IRS allows you to deduct for your legitimate expenses. Get into the habit of keeping consistent records throughout the year so the information is ready and coherent at year's end.
Reporting Notary Income
It is all important that notaries keep active logs of all notary-related income. This may include a simple notary fee that is charged for everyday notarizations such as acknowledged documents or sworn affidavits. Or, this may be larger payments received for mobile notary services or loan closings. In these cases, a notary may have generated a large income throughout the year. This income will be reported on Form 1040 Schedule C. Now is a good time to verify that you have received any outstanding payments from notary agencies and title companies for services rendered throughout the year. If you have received, or will receive, $600.00 or more from any one person or company, you should expect to receive a Form 1099-MISC. Make a list of all expected 1099s-MISC so you can check them off as you receive them in the new year or contact any company who may be late in sending it out to you. (Forms 1099 should generally be received no later than January 31st.)
All notary fees and payments for notary services are reportable as income, but notary fees are not subject to self-employment taxes. (Self-employment taxes are the payments a self-employed person pays into their Social Security and Medicare accounts. These payments are paid from the gross income of regular employees and matched by their employers.) Your tax advisor can advise and assist you about exempting your notary fees from self employment tax on your tax return.
For more information, view our notary tax article on notary fees.
Consider Paying Estimated Taxes
If your notary income is considerably large, you may find that it is advantageous in the future to pay estimated taxes throughout the year. This is an important consideration if the additional income from notary work causes you to enter a higher tax bracket and have increased tax liability. Estimated taxes are paid four times a year: April, June, September and January. The quarterly taxes will offset tax liability at the time the tax return is filed. Your tax consultant can advise you about this and assist you in determining how much to pay each quarter. The IRS expects taxpayers to "pay as they go." It is preferable to lower your tax liability during the year rather than to owe large tax bills at tax filing time.
Make Note of Filing Status and Other Changes
Lastly, notaries should do what all tax filers should do in preparing for tax season. Take time to determine if your filing status has changed from the previous tax year. If you have a new notary business, you will now almost certainly have self-employment income or income as an independent contractor. Therefore, you will be adding Form 1040 Schedule C to your regular federal tax return.
Did your marital status change? Did you add any new dependents? Did you relocate and thus generate moving expenses? All of these items may affect your tax return. Making notes and preparations now will allow you to breathe easy when the New Year arrives and tax filing season begins.
Due to the 2013 government shut-down, the 2014 tax season may be delayed by one or two weeks according to IRS sources. For further information, forms and publications, visit www.irs.gov.