Every official document you handle as a notary public or loan signing agent involves a critical process called notarial acts or notarization. This process, a cornerstone of legal and financial transactions, entails the meticulous recording of facts in a notary certificate. These actions are then authenticated by your signature, an official seal, and the structured procedure you undertake in your capacity as a notary. Why is this understanding crucial? Notarial acts play a paramount role in preventing fraud and ensuring authenticity within document transactions. As we journey through the intricacies of notarial acts, we’ll discover their significance, dive into IRS considerations, and grasp the substantial financial implications tied to their accurate tracking. Join us as we unravel the layers of this vital practice.
What are Notarial Acts?
A notarial act is also known as “notarization.” It is any written narration of facts in the notary certificate by a notary public, civil-law notary, or loan signing agent authenticated by the notary’s signature, an official seal, and detailed procedure transacted by or before the notary in their official capacity. Performing a notarization or notarial act is a three part process that includes vetting, certifying and record-keeping as the official process to deter fraud and assure authenticity to the parties involved in a document transaction.
Why Should Notaries’ Public and Loan Signing Agents Track Notarial Acts?
All self-employed individuals pay federal income tax, self-employment tax, and state income tax (in states that have state income taxes) on their net income or profit. The self-employment tax replaces Medicare and Social Security taxes employed individuals normally have withheld from their pay.
Notaries Public who notarize regularly as sole proprietors, as well as employee Notaries who notarize outside of work for extra income, are responsible for reporting those earnings to the IRS.
The IRS considers you to be self-employed if you:
- Carry on a trade or business as a sole proprietor;
- Are an independent contractor;
- Are a member of a partnership; or
- Are in business for yourself in any other way.
According to the IRS, “Self-employment can include work in addition to your regular full-time business activities, such as certain part-time work you do at home or in addition to your regular job.”
Notaries’ public and loan signing agents should track all notarial acts because income from notary fees is not subject to self-employment tax. However, it still must be reported to the IRS on Schedule C (Form 1040); see “Income and Losses Not Included in Net Earnings From Self-Employment” on page SE-5 of the IRS’ 2022 Instructions for Schedule SE.
While this does NOT mean that notarial acts are tax-deductible, the portion of net income earned from notarial acts is not subject to the 15.3% self-employment tax. In contrast, the rest of the notary public and loan signing agent’s income usually is subject to self-employment tax. Be aware of individual state limitations for notarial fees. Always record the maximum amount for notarial fees to save the most money possible on your taxes. Notaries’ public, civil-law notaries, and loan signing agents can save up to hundreds and thousands of dollars on their taxes when they carefully track notarial acts on every signing they perform.
Why Are Notarial Fees Always Less Than Net Income?
Notarial fees for a signing do not show up until you are paid and receive your income for a signing. Remember that notarial fees are only a portion of the net income, so you will never receive more in notarial fees than net income. For example, If an agent does a signing for $100, and the notarial fees are $150, they will only receive $100 in notarial fees. Accounting software for notaries’ public and loan signing agents will cap notarial fees when they reach the signing fee amount.
A Message From Notary2Pro
Please note that this article is NOT meant to serve as expert tax advice. Notary2Pro urges all notaries’ public and loan signing agents who earn income from their notary services to consult a tax expert for assistance with tax obligations and reporting.
Learn More about Notary Public & Loan Signing Agent Tax Advice
If you would like to hear more tax information from experts in the industry, please watch Notary2Pro’s Roundtable Discussion Replay: LeGault Financial Services. Notary2Pro’s experts and guest speakers discussed several topics pertinent to notaries’ public and professional loan signing agents during tax season. Our accounting and notary experts from LeGault Financial Services share information on how to effectively manage your business, maximize profits, and utilize eligible deductions.
Watch Replay Here: https://notary2pro.com/legault-financial-services-march-22-2022/
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