Notary Public Underwriters Blog
Tracking Notary Business Expenses
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- Published: March 28, 2023
Tax season is the worst time for a self-employed Notary to try reconstructing up to a year’s worth of business expenses so that lawful deductions can be claimed on their annual tax return.
But a little work and organization throughout the year can make annual reporting of business expenses on your tax return a breeze. (Not “fun,” but a lot easier.) Lay the groundwork now by implementing these fundamental rules of business expense tracking.
Rule 1—Track your personal and business-related records separately; never mix them.
This is Rule 1 because the IRS might disallow some claimed business expenses that appear to overlap too closely with personal uses. If this happens, you’ll need to show that the expense is in fact related to your business activities. That requires a clean audit trail that clearly segregates business and personal expenses. Some business-related expenses are easy to segregate for tracking, such as any office space you’re renting solely for business purposes; advertising; mailings; licensing; and so forth. But business use of a personal car, personal cell phone or home Internet is more difficult to substantiate unless (a) business-related usage is consistently tracked in your records; and (b) your expense records clearly segregate business expenses from personal ones.
Rule 2 – To claim a “home office” deduction, your “home office” space and any equipment in it must be used only for your business purposes.
This rule is easy to understand, but difficult to execute because it requires a lot of discipline. The IRS has disallowed home office deductions when the space claimed isn’t separate and distinct from the rest of the house; if personal documents or materials are found in that space; or when it’s clear that non-work activities are also happening within the space. Consider that “non-work activities” could be those of others who live with you. Be sure they understand that your home office space and everything in it is solely for your business use.
Rule 3 – Be sure that any digital tools or applications used for business purposes are never used for personal matters.
There’s a clear theme here, and it’s “don’t mix anything business-related with personal use.” For example, you might pay for subscription-based access to certain apps to help you manage your business and perform business-related services. Never use those apps for personal reasons—keep them dedicated to business uses, only.
Rule 4 – Maintain separate bank and credit card accounts for your business.
This is one of the most commonsense rules of personal/business segregation. There are functional benefits, as well. For example, if the IRS questions whether you’re running a business or practicing a hobby, having separate bank and credit card accounts for your business favorably demonstrates business-related purposes. And, interest paid on a business credit card balance is deductible as a business expense.
Rule 5 – Use a separate phone for business purposes, not your personal phone.
A separate phone used solely for business is 100% deductible as a business expense. If you use your personal phone for business purposes, you must carefully track and report the percentage of use attributable to business and be ready to defend your reporting if the IRS questions it.