Can CC Director offered reduced tuition to her tutors?

 

Can a Classical Conversations director gift an Independent Contractor or employee with free or reduced tuition?

Suzy

 

Suzy,
A Classical Conversations (CC) Director can give educational benefits (i.e., discounts on tuition) to Independent Contractors (IC) or employees, but (and this is a big, “but”) the value of these educational benefits is taxable income and must be reported on their W-2 or 1099-MISC.

So a CC director can offer a tuition discount to an IC or employee, but must add the value of that discount to the tax reports she gives to her tutors (1099-MISC or W-2).

And the worker must report her paid wages and the value of this discount/gift on her tax return as taxable income. You should warn her about that in writing and face-to-face, so they aren’t surprised at tax time!

We think that taxable income is only what comes in a paycheck, but the IRS defines taxable compensation to include “educational benefits.”

compensation includes salary or wages, deferred compensation, retirement benefits…, fringe benefits (personal vehicle, meals, lodging, personal and family educational benefits, low interest loans, payment of personal travel, entertainment, or other expenses, athletic or country club membership, and personal use of your property), and bonuses.[i]  (my emphasis added)

[i] Instructions for Form 1023 https://www.irs.gov/instructions/i1023/ch02.html#d0e1909

So, yes, a CC Director can offer free or reduced fees to an Independent Contractor or employee, but it is not a gift; it is taxable income and must be included in their wage and income reporting.

A CC Director should also check her license agreement with Classical Conversations to see if reduced fees are allowed.

If you have additional tax questions about being a CC Director, I wrote an ebook that can help!
Taxes for Licensed CC Directors is available from Classical Conversation. Find it here
Carol Topp, CPA
HomeschoolCPA.com

A homeschool group is using free Paypal. Is that legit?

Hi Carol!

Our small homeschool group set up our business account with PayPal to collect payments from our families.

A friend/homeschool leader said we should accept money through the “friends and family” option on PayPal and avoid the PayPal fees. I didn’t even realize this was an option for a business account, but it is. I’m not sure if that’s legit. 

What scenario would I ever accept money via friends and family?

Thanks so much for your service to us homeschooling mamas!

-V, a homeschool group leader

 

Dear V,

Since you are accepting payment for rendering a service, you cannot avoid the PayPal fee.

To use the “friends and family” option would be deceitful.That option is for true transfers of money among friends, but not if your group is getting paid for rendering a service.

No one likes paying fees, but PayPal is doing your organization a service (processing credit card or debit card payments) and you should expect to pay for that service. You may have to increase your fees to the families a bit to cover the extra expense, but paying the Paypal fees is the correct, proper and legal way to run your homeschool group.

Carol Topp, CPA

HomechoolCPA.com

 

Have more questions about managing the money in your homeschool group? My book Money Management in a Homeschool Organization may be just what you need!

Money Management for Homeschool Organizations

Does your homeschool group manage their money well? Do you have a budget and know where the money is spent? Do you know how to prevent fraud? This 115 page book will help you to open a checking account, establish a budget, prevent mistakes and fraud, use software to keep the books, prepare a financial statement and hire workers. Sample forms and examples of financial statements in clear English are provided.


Paperback $9.95

Ebook(pdf) $3.99

Kindle $3.99

 

 

Are your kids budding entrepreneurs?

 

Click for more details

If you have a budding entrepreneur in your house than have them join the Micro Business for Teens online Club!

Join other teenagers launching a micro business in a monthly coaching and mentoring session with Carol Topp, author of Micro Business for Teens. It’s all online, so you can participate from anywhere!

Micro Bushiness for Teens Club starts September 11, 2018

The sessions will be held once a month live on Tuesday afternoons at 3:00-4:00 pm ET

Registration open now! $100 per student or $150 for a full family for two semesters.

Click for more details

Coaching and mentoring like this with Carol Topp, CPA would typically cost $815! So $100 for 8 hours of Carol’s time and experience is a bargain!

Enroll now

Small charity grows and gets audited by the IRS for it!

A fellow CPA told me the story of what happened to a small charity.

The small charity thought they were eligible to file the new, easy, short IRS Form 1023-EZ to apply for 501c3 status.

Organizations can use the shorter, cheaper, online Form 1023-EZ if their annual gross revenues are less than $50,000/year and expect to be less than $50,000 for the next 3 years.

So off went the Form 1023-EZ application and the charity was granted 501c3 tax exempt status!

Then they held a fundraiser (or several fundraisers) that were successful beyond their dreams and their total revenue was OVER $50,000 in their second and third year. They filed (correctly) their annual information returns, Form 990-EZ, to report all their income and expenses.

That’s when they got a letter from the IRS.

The IRS was auditing them because the IRS claimed the charity should have filed the longer, more expensive, full Form 1023 when they applied because their annual revenues were more than $50,000/year. And the IRS was right, in hindsight.

The IRS auditor asked for:

  • The full application to be completed (its 26 pages!) along with copies of
  • Bylaws
  • Articles of Incorporation
  • Financial statements for 5 years
  • A narrative explaining the activities of the organization
  • Minutes of meetings

That last requirement surprised me because the Form 1023 application doesn’t ask for minutes of meetings, but the IRS auditor did.

Fortunately this group had those minutes and with the help of their CPA, passed the audit!

Lessons learned:

  • Keep minutes of your meetings.
  • Have all your documents ready in case the IRS asks to see them.
  • If you are close to the $50,000 annual gross revenues threshold and think you could exceed it in your first 3 years, use the full length Form 1023 application form when applying for 501c3 tax exempt status.

 

 

Have more questions about the IRS, 501c3 tax exempt status, and your nonprofit?

Carol Topp’s book, The IRS and Your Homeschool Organization can help!

  • The benefits of 501(c)(3) status
  • The disadvantages too!
  • What it takes to make the IRS happy
  • What your state requires
  • Why your organization should consider becoming a nonprofit corporation
  • What is the difference between nonprofit incorporation and tax exemption
  • IRS requirements after you are tax exempt

Order here.

 

Carol Topp, CPA

 

How to Start a Homeschool Co-op

I was interviewed by Mary Jo Tate of Homeschool Channel TV talking about homeschool co-ops!

We discussed the

  • pros and cons of co-ops,
  • how to evaluate if a co-op is right for your family,
  • how to avoid burn out and
  • how to start your own co-op.

Click to watch video

 

My book Homeschool Co-ops: How to Start Them Run Them and Not Burn Out can be a big help to get you starting creating a homeschool co-op!

Read a sample chapter from Homeschool Co-ops: How to Start Them Run Them and Not Burn Out
Sample Chapter

Order a copy of Homeschool Co-ops in print or ebook.

 

Is buying T-shirts from a board member a conflict of interest?

Homeschool Mom T-Shirt

Hi, we are wanting t-shirts for our homeschool group. One of our board members can make the t-shirts.

Is it a conflict of interest if she makes them? There would be a little profit made from what is charged to the members.

Would she be able to keep that profit or would it need to go back into the co-op so that there would be no benefit to her?

Thank you. Mary

 

Mary,

You asked if buying T-shirts from a board member is a conflict of interest. Yes it is a conflict of interests between her T-shirt business and her duty of loyalty to the homeschool group.But that does not mean she is forbidden to offer her t-shirt service to your group!

There is a practical, easy way to handle conflicts of interest.

When you discuss the T-shirts, the board member who could benefit from the sale should explain that she has a conflict of interest, leave the room, and not have a vote in the decision.

Your board should do its due diligence and get bids form at least two other T-shirt sellers and compare it to the board member’s offer. Then make a decision.

So, just because a board member has a conflict of interest, does not mean that you cannot buy T shirts from her, if she has the lowest bid.

And she gets to keep the profits because it’s her business doing the work.

 

If you have more questions about conflicts of interest you might find these books helpful:

It’s a template for you to create your own board manuals as a place to store important papers and policies.
Carol Topp, CPA

Can homeschool groups give free tuition to teachers like private schools?

I taught at a private school before I started homeschooling and I received free tuition for my children. Now I teach at a homeschool program. Can homeschool groups give free or reduced tuition as a fringe benefit like private schools?

 

Maybe!

You’re talking about what the US Tax Code calls “Qualified tuition reduction.”

The United States Tax Code, or 26 U.S.C. § 117(d) has some good news:
 In General. – Gross income shall not include any qualified tuition reduction.
“qualified tuition reduction” means the amount of any reduction in tuition provided to an employee of an organization described in section 170(b)(1)(A)(ii)

 

In plain English that means a school may provide its employees with tuition breaks, or cash grants for payment of tuition, without that benefit being considered taxable income to the employee. Good news for school employees!

But notice a few important words: employee and school

Are you an employee of the homeschool program?

If so, keep reading. But if you are an Independent Contractor, you cannot get tax-free tuition reduction benefits.

Is the homeschool program you work for as an employee a “school”?

The US Tax Code defines a school in section 170(b)(1)(A)(ii):

 An educational organization is described in section 170(b)(1)(A)(ii) if its primary function is the presentation of formal instruction and it normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. The term includes institutions such as primary, secondary, preparatory, or high schools, and colleges and universities. It includes Federal, State, and other public-supported schools which otherwise come within the definition.

 

One aspect of a school is a “regular faculty,” which the IRS defines as

“qualified teachers instruct the students, and the same teachers do so on a recurrent basis.” 

Source: Internal Revenue Manual viewed http://www.irs.gov/irm/part7/irm_07-026-002.html#d0e549 on 5/11/15.

And by “qualified” the IRS means:

“certifications by the appropriate state authority or successful completion of required training.” 

Source: Instructions for Form 1023

Hmmm…

…regular faculty…regularly enrolled student body…qualified teachers…recurrent basis…teacher certifications…

Do those words used to definition a “school” apply to your homeschool program?

Maybe. Or maybe not. It might be hard to tell what the IRS meant since this part of the US Tax Code was written long before anyone thought of homeschool programs employing teachers.

Here’s my concern: If a homeschool program fits the IRS and US Tax Code definition of “school” so that its employees can get tax-free fringe benefits, is that homeschool program also a school in the eyes of its state laws regarding private schools? And are the students then attending a school and not really legally homeschooling?

Additionally, since states regulate education in the USA, your state’s definition of school may be VERY different from the US Tax Code’s definition.

It gets confusing. Very confusing. I’m a pretty conservative CPA and don’t like advising my clients unless things are pretty clearly stated in the tax code.

I also don’t want homeschool programs to be treated as schools or to even call themselves schools. I’m concerned that if homeschool programs call themselves “schools” the state may start imposing all the rules that schools must follow onto independent homeschool programs. That will stifle creativity, educational freedom, add a paperwork and reporting burden, and may end up restricting our homeschool freedoms.

It’s just not worth it!

My advice: Avoid attempting to fit the US Tax Code definition of “school.” Avoid even calling your homeschool program a school with both the IRS and with your state. Maintain homeschooling freedom even if it means you cannot offer your employees tax-free fringe benefits of “qualified tuition reduction.”

You may decide differently from what I wrote above. You may decide your homeschool program is a “school” by the IRS and US Tax Code definition. But if you do, please, please get a legal opinion on your organization’s status as a school from a qualified attorney experienced in educational institutions and get it in writing. Yes, you’ll have to pay for it, but it will be your defense if your State Board of Education wants to regulate your homeschool program!

 

Carol Topp, CPA

Motivation to homeschool is changing. How does your group adapt?

Homeschool is changing! I know that you as a homeschool leader see those changes.

In her 2012 book Home Is Where the School Is, sociologist Jennifer Lois broadly divided homeschoolers into two groups: first-choice and second-choice homeschoolers.

A 2017 Pioneer Institute whitepaper characterized the groups this way: “The ‘first-choice’ family is in essence the traditional homeschooling family, viewing homeschooling as a lifestyle and an integral part of a student’s growth.

‘Second-choice’ homeschooling parents might be described as ‘pragmatic homeschoolers,’ perhaps even ‘reluctant homeschoolers.’ . . . this sub-set tends to view homeschooling as a stop-gap solution to a school-based problem as opposed to an overall family lifestyle.”

As more people start homeschooling for different motivations other than as a lifestyle, raising life-long learners, or faith, how does your group adapt?

Are you accommodating the parents who are just looking for a stop-gap solution?

Here is what some groups are trying:

  • Allowing more drop off students  and less parental involvement
  • Hiring more paid teachers
  • Offering more parent education on how to homeschool
  • Opening their formerly exclusive groups to allow public-school-at-home families to join

Share your ideas in the comments or join the I Am a Homeschool Group Leader group on Facebook and leave a comment.

 

Carol Topp, CPA

Helping Homeschool Leaders

Why is being a homeschool group leader so exhausting and thankless?

On the Facebook group I am a Homeschool Group Leader, Lesley asks,

Why is being a homeschool group leader so exhausting and thankless?

Here are some replies from other homeschool group leaders (my emphasis added).

Jennifer: Because those you are leading haven’t done it and don’t have a full appreciation for the workload. Empathy is hard to come by when a person hasn’t ‘been there.’

Some people just don’t know how to say thank you. We had a team of 5 leaders. Every semester, I gave them a small gift and thank you note, letting them know I appreciated what they personally brought to our group.

 

Beth: Do you have a reliable team of leaders working alongside you? That has made all the difference as I’ve been in homeschool group leadership – as president as well as a numerous other roles – over the past 24 years. Our group grew from 20 families to almost 400 families during that time. There have been tough seasons and also smooth seasons. Make sure you prioritize and try to delegate or let go of things to minimize stress where you can.

The leaders don’t plan everything, but provide the structure and administration for the group, and establish policies as needed. I started our group with 2 other moms, and we were the core at first. When we found like-minded people, we mentored them and encouraged them to use their gifts and talents for the benefit of the group. We really did find some wonderful people who saw that their own families benefited by their contribution. We worked hard to repeatedly convey the message that we all helped one another. We also have those who just want to be served, and it can be frustrating as a leader when you also “are busy” and have your own family to homeschool and care for.

 

Melissa: First because the workers are volunteering so you don’t always get what you need from who is willing to work for free. It can be difficult to fill all the positions with people that will work as a team, complimenting each other’s skills. Sometimes you take what you can get.
Second, you are working for a group of people that want a service. It’s not like you are all saving the whales. The parents want something. For as low cost as possible.

 

Cheryl: Sometimes effective leaders seem to have it all under control in a way that makes others think they’re not needed. Those who stepped in in the group took time to figure out jobs that needed doing and clearly and repeatedly asked for help. And then let people run with those jobs rather than micromanaging them.

Another difference I see is in expressing thanks. Leaders who manage teams well tend to be public and loud with praise on a regular basis—rather than criticizing often. Speaking about them to the group with thankfulness for their work, mentioning in emails or other group communication their hard work, giving out awards and certificates, etc. can help.

Darlene Cheryl, this reminded me of another problem I saw in a group that I was part of several years ago. The leader of the group was a very capable woman. Someone in another role would falter or step away, and she would fill that role. After a few years, she wanted to step away from the head position. The problem was that everyone looked at her and said, “I can’t do that!” She was wearing too many hats! Her job looked daunting. We had to break down all she did into about a dozen positions before anyone would step forward to take on any of it.

Sheri: Hmmm. Are you expecting too much? Too little? Giving too much guidance? Not enough guidance? Are you working with their personality type and not against it?
Start with your WHY. Why do you exist? What is your vision? Then work on clearly communicating that vision. People will “catch” a passionate, clear vision and buy into it. Don’t try to be all things to all people; those who have a different vision, let them go with your blessing to find or start something else. I’d rather have a small group of committed people than a large group of apathetic people.
We made our yearly planning meeting mandatory. We asked for ideas and wrote them on a whiteboard. Then I would ask who would run that. If no one volunteered, I just erased it off the board. One year our favorite event, a yearly picnic, no one stepped up and I erased it. I think members thought the board would just do it, but we did not. Everyone complained but we stood firm. That next year, it was quite simple to get a whole 5 person committee to step up and make it happen.
Also, I paid attention to who was proposing events but never volunteering. As leader, I would take them aside and have a talk.

  • Are there extenuating circumstances?
  • Are they intimidated?
  • Lazy?
  • Overwhelmed?
  • Apathetic?
Depending on what I discerned in conversation, I could approach it several ways.
  • Sign them to assist someone else,
  • give them something simple,
  • discourage them from asking for events that they wouldn’t also work for, etc.
  • Even someone with a chronic illness can head a field trip with no cost; they can call the facility to arrange a date, set out a sign up sheet at meetings, and call the facility back with a final number.

Sometimes they just need a little guidance.

 

That’s helpful advice for Lesley and maybe you too!

If you need help running your homeschool group my books can help.
My  Homeschool Organization Board Manual may be very helpful. It is a combination of a template for your board to create binders to keep important documents and a board training manual to explain the board’s duties and responsibilities.
Carol Topp, CPA
HomeschoolCPA.com

Is our homeschool group required to have a president?

I recently purchased your ebook The IRS and Your Homeschool Organization. It is so helpful! I do have one question that I hope you can help me with. Are we required to have a president for our organization in Ohio? I see lots of websites saying that we do but not a word about it on any of the actual Ohio documents.

Thank you for your time.

Ashley

 

Dear Ashley,

You asked, “Are we required to have a president for our organization in Ohio. I see lots of websites saying that we do but not a word about it on any of the actual Ohio documents.”

Well, not everything that is a good idea is a codified into a law or specifically spelled out in a document! Like brushing your teeth  for example! 🙂

This document from the Ohio attorney general’s office is helpful.
Guide for Charity Board Members

It explains that there are duties and responsibilities for board members such as the duty of care, duty of management and duty of compliance with stated laws.

If you can execute those duties without a president, then you do not have to have a president. But it is nearly impossible to properly run a nonprofit without someone in the role of chair/president calling meetings, setting an agenda, running the meetings, providing oversight, etc.

So why not have a president (or chair)?

Of course, all the board members are expected to help run the organization. The president should not do it alone. The best board presidents I have served under were good at delegating, listening, and leading, but not doing everything themselves. The worst presidents or board chairs are those who decide everything themselves and try to control too much. They burn out and sometimes damage the group and its activities for a very long time.

There may be some back story and history (or even a dispute) to your question, so if you’d like I would be happy to arrange a phone consultation with you.

If your homeschool program would like to arrange a phone consultation with Carol Topp, CPA contact her here. She is happy to arrange a conference call and each persona can call in form heir own home or location. The conversation can be recorded for those unable to attend.

 

Carol Topp, CPA
HomeschoolCPA.com