Why You Need to Use an Accountant for Your Taxes

The Two Most Common Mistakes

The two most common mistakes notaries typically make is they try to do their taxes themselves or they go to their local tax prep office instead of using an actual CPA (Certified Public Accountant).  The reason it’s so important is because notaries get to do something that all other self employed people don’t.  They get to use their notarial acts to reduce the amount of self employment tax.

What is self employment tax

Everyone who earns income pays federal income tax and state income tax (for those living in states that require a state income tax). In addition to that self-employed people, like notaries, have to pay a third tax called self-employment tax. Self-employment tax is a 15.3% tax that is designed to cover the Social Security and Medicare taxes that would normally be withheld from your paycheck if you were paid as an employee.

Now here is where it gets good for notaries.  Notaries have a special way to lower the amount of self-employment tax they have to pay. The IRS has a rule, (See IRS Publication 334 - Notary Public) that states notarial fees (the amount notaries can charge to complete notarial acts) are not subject to self-employment tax.  In most cases your notarial acts will reduce the amount of self-employment tax you have to pay by at least 75%, if not completely eliminate it.

The best way to illustrate the power of this special rule is to use an example.  Let’s say you make $30,000 in profit this year and your notarial acts cover 75% off that profit, then you would save $3,442.50 ($30,000 x 15.3% x 75% = 3,442.50).  That’s over $3,400 in tax savings!

This is why it’s so important for notaries to track their notarial acts on every notary on every signing/notary job.

Why You Shouldn’t Do Your Taxes Yourself

Now that you understand what self-employment taxes are and how important it is to track your notarial acts it should be pretty obvious why you need a professional to prepare your taxes.  Because if you don’t report that amount and the corresponding forms correctly then you will end up paying thousands more in taxes than you should.

Why You Shouldn’t Use Your Local Tax Prep Office

Ok, so I’ve convinced you not to file them yourself.  What about the local tax prep office where millions of people have their taxes done?  Why not use them?  99% of the time those tax prep offices are filled with people who went through a few weeks of training on how to prepare taxes.  They basically ask you a bunch of questions, type the answers into their software, and the software generates your return (basically the same thing you would do if you did it yourself).

The same problem exists here.  If the person entering your info doesn’t understand notarial acts and how they affect self-employment tax then you’ll end up paying thousands more in taxes than you should.  And the odds of that person even knowing this rule exists and then knowing how to report it correctly are pretty low.  The worst part is you would probably never know they missed it.  It happens to thousands of notaries every year.

Why you need to use a CPA (Certified Public Accountant)

What you really need is a CPA (Certified Public Accountant - a.k.a Accountant).  In most cases an accountant goes to college for 4 years and obtains a Bachelor’s degree in Accounting and then has to pass an extremely rigorous state exam to become a Certified Public Accountant.  Bottom line…they are going to know more and be more extensively trained.

The only drawback is they typically will charge a couple hundred dollars more, but you usually get something extra in return.  They normally have a more in depth understanding of the tax law and how to use them to your advantage, which can translate to more tax savings $$$.  They can provide tax planning for the future to save you even more money.

I always say…when you find a good accountant they are worth their weight in gold!.  Finding a good one is critical to saving you money and building wealth.  Accountants are human and no two are created equal so be sure to check our our article on How to Find a Good Accountant that knows how to prepare taxes correctly for a notary.  If you get one that doesn't understand notarial acts then you could end up paying thousands more in taxes than you should.