Can homeschoolers use 529 plans? Maybe!

Congress decided to expand 529 savings plans to be used for K-12 expenses in the Tax Cut and Jobs Act or 2017. 529 plans were originally set up to save for college. The earnings on the savings is tax free. But they specifically excluded homeschool expenses from using 529 funds.

That seemed unfair to a lot of homeschoolers.

But there may be a way for homeschoolers to use their 529 savings accounts for some K-12 expenses.

The Tax Cut and Jobs Act or 2017 says this:

the term ‘qualified higher education expense’ shall include a reference to expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.”. (emphasis added)

There are 2 conditions for you to use 529 funds for K-12 expenses:

1) the costs must be for tuition and

2) the institution the family pays must be “a public, private, or religious school”

Some homeschool students take classes from private schools (locally or online). The tuition payments to these schools can use 529 funds.

But the cost of books, supplies, equipment, and payments to organizations that are not schools cannot use 529 funds.

Be careful that the tuition payments are going to a public, private, or religious school. In my experience most homeschool programs (co-ops, tutorials, etc) are NOT schools.

Homeschool parents should check with the program that they are paying tuition to to determine if it is a school according to their state’s definition.

If you have any concern about their status as a school, then do not use 529 funds to pay for the tuition. Withdrawals from a 529 fund that are not “qualified” (i.e. tuition paid to a public, private, or religious school) then you pay income tax and a penalty of 10% on the withdrawn funds. Ouch!

Carol Topp, CPA

Defining Your Homeschool Co-op’s Mission and Purpose

 

How id your homeschool co-op unique?

Each homeschool co-op is unique and should have a specific purpose. Without a focused mission the leaders can be trying to all things to all people and will quickly burnout. Listen as Carol Topp discusses creating a purpose and mission for your homeschool co-op.

Featured resource

Homeschool Co-ops:
How to Start Them, Run Them and not Burn Out

 

Have you ever thought about starting a homeschool co-op? Are you afraid it will be too much work? Do you think you’ll have to do it all by yourself? Starting a homeschool co-op can be easy! This book Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out will give you ideas, inspiration, tips, wisdom and the tools you need to start a homeschool co-op, run it and not burn out!

Click Here to request more information!

Carol Topp, CPA

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What homeschool expenses can I deduct on my taxes?

Here’s a list of homeschool expenses you can deduct on your federal income tax return (Form 1040):

1.

Yes, that’s the list! It’s empty. There are NO homeschool expenses that you can deduct on your individual federal income tax return.

(Sorry for the click bait in the title!)

Homeschooling expenses are personal expenses, like groceries or clothes, and are not tax deductible on the US federal income tax return.

You cannot deduct your groceries or your clothes on your tax return and you cannot deduct your homeschooling expenses on your federal income tax return, either.

A few states may allow a tax deduction, a tax credit, or an educational saving account. But not your Uncle Sam (the US federal government).

 

Clever ideas to dodge taxes (that won’t work)

Sometimes homeschool families try to get clever and think that they will form a homeschool business and deduct the expenses. The idea is for the dad to hire his wife to teach their children. Then they can deduct school supplies, the mom’s wages as a homeschool teacher, etc.

Sounds pretty clever, huh? Except it doesn’t work anymore than paying mom to cook and feed the family by running an “in-house restaurant” won’t work. That’s because in both these plans (homeschooling as a business and in-house restaurant) there are no customers that are paying for the mom’s services.

Also, the mom has to declare her income to the IRS and she will have to pay taxes on it! That’s why families don’t hire mom to run an in-house restaurant and they shouldn’t hire mom to homeschool the kids either.

So forget the idea of forming your family homeschool as a business.

Homeschools as private school. Any tax breaks?

Some states treat homeschools as private schools, so some families think they can avoid taxes by declaring their private homeschool as a nonprofit organizations and get tax exempt status as a private school. That’s pretty clever too, huh? Only it won’t work.

Briefly, a nonprofit organization exists to serve a group, not an individual. The IRS will not grant “recognized charity” 501(c)(3) tax exempt status to a group that is formed solely to benefit the founder’s family. A tax exempt organization must serve a public good.

The IRS forbids private “inurement” in 501(c)(3) tax exempt organizations. Inurement means to be beneficial or advantageous. Inurement occurs when an organization is formed or operates with an incorrect charitable purpose that allows individuals in control to directly and personally benefit from the organization. 501(c)(3) organizations can lose their tax exempt status for practicing inurement.

So forget the idea of your family homeschool becoming a nonprofit organization.

 

In the end, do what the rest of use do, pay your taxes.

Don’t look to Uncle Sam to give you a tax break because you choose to educate your children at home. Instead appreciate the freedom we have an Americans to homeschool.

 

Carol Topp, CPA

What Are the Disadvantages of Homeschool Co-ops?

 

Are homeschool co-ops worth the time and money involved?

What are other disadvantages you should know about before joining a homeschool co-op?

Homeschool co-ops have a lot of advantages, but some disadvantages too. Be sure you consider these costs and potential issues before you join a co-op. If you are leading a homeschool co-op listen in to this short podcast episode (15 minutes) from Carol Topp, the HomeschoolCPA, to learn how to deal with the expectations of your members.

 

 

Featured resource

Homeschool Co-ops: How to Start Them, Run Them and not Burn Out

Have you ever thought about starting a homeschool co-op? Are you afraid it will be too much work? Do you think you’ll have to do it all by yourself? Starting a homeschool co-op can be easy! This book Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out will give you ideas, inspiration, tips, wisdom and the tools you need to start a homeschool co-op, run it and not burn out!

Carol Topp, CPA

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Can a homeschool group deduct tuition from a teacher’s pay?

A homeschool program charges $2,300  per student per year for tuition. Many of the teachers in the program also have their children enrolled in the program.

The leader, Lauren, was deducting the amount of tuition owed from the teacher’s pay and reporting only the difference that she actually paid the teacher.

For example:

Teacher’s earnings: $4,000

Tuition that the teacher owed: $2,300

Teacher’s paychecks: $1,700 ($4,000 less $2,300)

Additionally, Lauren was filing the teacher’s W-2 (or 1099-MISC) and reporting wages of only $1,700, but the true earnings were $4,000.

I advise that homeschool organization DO NOT net the teacher’s pay and her tuition owed like this!

Here’s why:

Picky CPA reason: This netting (subtracting the amount paid to the teacher by the tuition she owed) masks the true amount of teacher pay and the true amount of tuition received in your bookkeeping. The homeschool leadership needs to know the total income from tuition and the total expenses paid for teachers. Netting them masks the true income and true expenses. Additionally, the total amounts of income and expenses must be reported to the IRS (usually on Form 990 or 990-EZ).

More important reason: Taxes! 

The teacher’s payments for her services is taxable earned income. But her child’s tuition is a personal  expense and not tax deductible.

I recommend that the teacher should be paid the full amount earned (in my example, $4,000) and in a separate transaction, she should pay her tuition to Lauren’s homeschool program.

Lauren was advised that she will need to amend the W-2s she gave to her teacher to correct this mistake. This will be an unwelcome surprise to the teacher, but it’s the correct, legal amount to report.

I know it seems like extra work and more complicated, but netting or offsetting the two transactions could distort the total amount of compensation the teacher needs to report to the IRS. It’s mixing taxable income with a non-tax-deductible personal expense.

That’s called tax evasion and the IRS doesn’t take kindly to tax evasion.

Cover Money Mgmt HS OrgFor more information on paying workers and correctly recording transactions in an accounting system, you may find my book, Money Management in a Homeschool Organization, helpful.

 

Carol Topp, CPA

 

Ebook Taxes for CC Licensed Directors almost ready!

I just sent the final (I hope) version of my  ebook Taxes for Classical Conversions Licensed Directors off to Classical Conversations, Inc!

The ebook will be distributed by Classical Conversations, Inc to their licensed directors. It is my understanding that the ebook will be available at no charge to the licensed directors.

Update: The ebook was released on the Directors License Guide in late March 2018. Find it here.

If you’ve already prepared your tax return for 2017, you should STILL read this ebook to be sure you did everything correctly!

If you are not a licensed director with CC, I cannot share or sell a copy with you (sorry!), but I recommend you read the following blog posts:

CC Directors: Do not give yourself a 1099-MISC

Tax return for a Classical Conversations homeschool business

I’m a Classical Conversations Director. Do I have to file any forms with the IRS?

Understanding Taxes for a small homeschool business

 

Carol Topp, CPA


Free Resource

In the ebook, I mention a bookkeeping spreadsheet for CC Directors. You can get the spreadsheet now (all it costs is your email!)

 


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What Are the Benefits of a Homeschool Co-op?

 

Are you considering starting a homeschool co-op?

What are the advantages of belonging to a co-op?

They are many as Carol Topp, the Homeschool CPA, points out in this short (15 minutes)podcast. If you’re already leading a homeschool co-op listen in to see if you are offering these advantages to your co-op members.

 

Featured resource

Homeschool Co-ops: How to Start Them, Run Them and not Burn Out

Have you ever thought about starting a homeschool co-op? Are you afraid it will be too much work? Do you think you’ll have to do it all by yourself? Starting a homeschool co-op can be easy! This book Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out will give you ideas, inspiration, tips, wisdom and the tools you need to start a homeschool co-op, run it and not burn out!

Carol Topp, CPA

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Does refunding homeschool dues cause a tax problem?

 Due to some circumstances, our homeschool group will no longer be able to offer classes and we wish to refund members the dues paid to our group within the past few months.  Will we run into any taxation problems or other problems involving the IRS?  Thank you!
Andrea
Andrea,

 

It is perfectly acceptable for your homeschool group to refund the class dues since you never delivered the service (i.e. the classes).

 

Since you didn’t deliver the classes the customer is due a refund.

 

What is not allowed for a 501(c)(3) tax exempt nonprofit group like yours is to distribute any funds if your group dissolves. The IRS requires that assets (money in the bank and anything you own) of a 501(c)(3) organization must go to another 501(c)(3) organization when it closes. The assets cannot be divvied up among the members or leaders.

 

This refund is not taxable income to the parents. It is just a refund of a payment for services that were never delivered.

 

Carol Topp, CPA

Any Tax Deductions for Homeschoolers This Year?

 

Are there any tax deductions for homeschoolers this year?

Carol Topp, CPA answered this question originally back in 2014, but the answer is still the same-even with the new tax laws passed in 2017. Additionally, Carol gives some details on college expenses that are tax deductible and tax advantaged college savings plans.

This is a repeat of a podcast episode aired in 2014. I (Carol) caught a nasty cold and sinus infection and couldn’t talk without coughing for several weeks. I hope you find the re-broadcast of this episode helpful!

 

In the podcast Carol mentioned these resources:

Home School Legal Defense Association has an explanation of some states’ tax breaks or credits:http://www.hslda.org/docs/nche/000010/200504150.asp

Ann Zeise of A to Z Home’s Cool has a great, detailed and lengthy post of tax write-offs for homeschoolers:
https://a2zhomeschooling.com/laws/homeschool_laws_legalities/tax_deductions_educational_writeoffs/

 

Carol Topp, CPA

 

Easy Fundraisers for Your Homeschool Group

 

Does your homeschool organization need some ideas for raising money?

Carol Topp, the Homeschool CPA, shares ideas for easy fundraising in this episode of the Dollars And Sense Show.

This is a repeat of a podcast episode aired in 2014. I (Carol) caught a nasty cold and sinus infection and couldn’t talk without coughing for several weeks. I hope you find the re-broadcast of this episode helpful!

In the podcast Carol mentioned a warning: No Individual fundraising accounts!
See http://homeschoolcpa.com/scouts-dont-allow-individual-fundraising-account-and-neither-should-you/

 

More information:
Money Mgmt HS OrgCover

Money Management in a Homeschool Organization book

Blog posts  on fundraising: http://homeschoolcpa.com/tag/fund-raising/

Article “Easy Fundraisers for Homeschool Groups” at http://homeschoolcpa.com/leader-tools/articles/

 

Carol Topp, CPA