As an independent contractor or sole proprietor of a notary or signing agent business, it’s important to understand self-employment (SE) tax.
If you are a business owner, you are not considered an employee. No taxes are withheld from your pay for federal income, Social Security or Medicare. The SE tax is a way for the federal government to collect for Social Security and Medicare; the rate on net earnings is 15.3 percent (12.4 percent for Social Security and 2.9 percent for Medicare).
You must report all the income you receive as a notary, including notarial fees, clerical and travel fees. This is your gross income and is reported on Schedule C or Schedule C-EZ of your 1040 tax form. However, fees allowable by your state’s notary law (for executing affidavits, verifications, acknowledgments, etc.) are not subject to SE tax.
Let’s use an example to explain the tax. Say you earned $75,000 in 2008 as a mobile notary. Of that total, $10,000 was fees for specific notarial acts. This amount would not be included in the calculations for the SE tax.
The SE tax is based on 92.35 percent of your total net earnings. Using the example above, the taxable portion of $65,000 ($75,000 minus $10,000 of notarial act fees) is $60,027.50 ($65,000 x 92.35 percent). Next, multiply $60,027.50 by 15.3 percent. Your self-employment tax is $9,184.21. You will need to file a Schedule SE with your Form 1040 to report this tax. If you use a tax software program, such as TurboTax or Tax Cut, the software will figure your SE tax automatically.
The Internal Revenue Service (IRS) allows you to deduct one-half of the SE tax on your 1040. This amount reduces your adjusted gross income and will help reduce your overall taxes.
Expenses such as travel, notarial supplies, seminar tuition, notary association membership fees and Errors and Omissions Insurance may be deducted as expenses relating to your business. If you have an office in your home, you can also deduct expenses associated with it, including a portion of your utility costs and mortgage insurance.
Please remember – this information is meant as a guide to aid you in preparing your federal tax forms.
For more information on reporting taxable income and SE tax, visit the IRS Web sit at www.irs.gov, or consult a tax professional.