The Ultimate Side Hustle & Tax Savings.
Even though being a Notary, is a side hustle for some, it is a full time gig for many. Full or part-time, both types still have to file taxes and should consider strategic tax planning when doing so, come year end. Here are 3 tax planning tips for Notaries to take into consideration before, and even after, December 31st.
Of course, everybody’s tax situation is different, and nothing written below should be taken as tax advice, but rather as ideas you can take to your tax advisor to see if they make sense for you and your Notary business. This article is strictly for informational purposes.
Of course, everybody’s tax situation is different, and nothing written below should be taken as tax advice, but rather as ideas you can take to your tax advisor to see if they make sense for you and your Notary business. This article is strictly for informational purposes.
- Set Up A Retirement Plan Through Your Business
Many small business owners think that because they aren’t employed by a big company, they are no longer eligible to set aside money in retirement accounts that can save them big at tax time. This is a myth as, in fact, small business owners often have more options available to them in terms of tax-advantaged retirement plans than employees of someone else.
A W-2 employee under the age of 50 can only stash away a maximum of $19,000 into a 401(k) in 2019 ($25,000 if 50 or older). At a 24% marginal tax rate, this comes out to a tax savings of $4,560 ($6,000 if 50 or older) if you contribute the maximum allowed.
A self-employed Notary under the age of 50, on the other hand, can stash away up to $56,000 into a 401(k) they set up through their business in 2019 ($62,000 if 50 or older). At a 24% marginal tax rate, this comes out to a tax savings of $13,440 ($14,880 if 50 or older) if you contribute the maximum allowed.
2. Hire Your Children
Do you have kids? Consider hiring them to help you in your business.
This can be a great tax strategy because, thanks to the new tax bill passed in late 2017, you can pay each of your children up to $12,200 a year, and this money will be tax-free to them, while your business gets a deduction for what you pay them.
Of course, you can’t pay your child $12,200 a year for filing papers a few hours every month; the wage you pay them has to be what you would pay them even if they were not related to you.
It’s also crucial to remember that Notaries handle sensitive information, so there are certain things your children will not be able to help out with unless they are also commissioned Notaries.
3. Set Up a Business Entity for Your Notary Service
If you don’t already have an entity set up, the end of the year may be a good time to get the paperwork filed so that you can begin the new year earning income solely in your business entity rather than in your own name.
For most people, all small business income they earn that is paid directly to themselves as individuals is subject, to some degree, to the self-employment tax (in addition to regular income tax). However, if you make money in your business entity rather than as an individual, you can possibly avoid paying self-employment tax on a portion of your business’s earnings.
Of course, setting up an entity for tax purposes doesn’t make sense for everybody, and it also has legal ramifications, so be sure you consult with qualified advisors before making any moves.
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