Who’s Afraid of the IRS? (podcast)

IRS and homeschool

 

Are you afraid of the IRS? Should you be?

How does the IRS see homeschool organizations?

In the latest episode of the Dollars and Sense podcast, host Carol Topp discusses how the IRS sees homeschool organizations. Carol discusses homeschool support groups and IRS 501(c)(7) tax exempt status as a Social Club.

Listen to the podcast here

Get a copy of the handout Who’s Afraid of the IRS Handout

Carol mentioned the article “Do You Know About IRS Required Filings for Homeschool Organizations?” Get it here.

The IRS and Your Homeschool Organization

Carol’s book, The IRS and Your Homeschool Organization, is available here.

Carol Topp at CHAP in Harrisburg, PA

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I love talking to homeschoolers at conventions, so I was happy to be invited to the Christian Home Educators of Pennsylvania conference in Harrisburg, PA May 8-9, 2015.

(that photo is from when I was in Harrisburg a few years ago)

It’ll be talking about:

  • Career Exploration for high school students
  • 30+ Micro Business Ideas for Teens (and parents!)
  • Top(p) Ten Tips for Running a Homeschool Organization

I’ll also be part of an After High School panel

And as part of the Teen Track, I’ll be showing my video Starting a Micro Business and discussing the video with teenagers in a two-session block. I’ve never done that before, so it should be a lot of fun!

 

If you’re not near Tulsa, maybe we can meet up at these conventions:

 

Can’t make it to any of these conventions? Listen to many of these topics on my podcast, The Dollars and Sense Show.

Recent podcasts include:

  • We’re Not Raising Children, We’re Raising Grown Ups
  • Warnings Against Frugal Homeschooling
  • Has Your Homeschool Group Lost Its Tax Exempt Status

How to change your nonprofit’s fiscal year

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Carol,

I help run a homeschool co-op that has 501(c)(3) status.

The IRS has our fiscal year end as December 31 because that’s what our original officers put on our SS-4 application to get our employer ID number.  But we’d like to change it to a school year with our year end being June 30.

How can we change our fiscal year?

Tracy in Michigan

 

Tracy,

Changing your fiscal year is pretty easy.

Large nonprofits

If your homeschool organization is large enough that you file a Form 990 or 990-EZ (more than $50,000 in annual gross revenues), then you file a Form 990/990-EZ for the short period resulting from the change.

In Tracy’s case, the short period would be from January 1 until June 30.

Write “Change of Accounting Period” at the top of this short-period return.

 Small nonprofit organizations

But chances are your homeschool organization is small and files the annual information epostcard, Form 990-N. There is no way to write “Change Accounting Period” on the electronic Form 990-N.

In that case you can file the longer Form 990-EZ or file a Form 1128, Application to Adopt, Change, or Retain a Tax Year, to change its accounting period. Form 1128 instructions explain how to complete and submit the form.

User Fee

The Form 1128 may involve a $250 user fee. Ouch!

But, a user fee is not required if requesting an automatic approval (under any of the sections of Part II of the Form 1128). This probably applies to Tracy’s organization because it has not changed its fiscal year in the past 10 years.

Write a letter

Or the IRS says you can write a letter requesting a change in accounting period. Send the letter to:

Internal Revenue Service
1973 N. Rulon White Blvd.
Ogden, Utah 84404

 

Sources: http://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Annual-Reporting-Requirements-Filing-Procedures:-Change-in-Accounting-Period
http://www.irs.gov/instructions/i990/ch01.html#d0e814

I hope that helps,

 

Carol Topp, CPA

Meet Carol Topp, the HomeschoolCPA in OK, PA, MI, TX (or your home!)

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Homeschool convention season has arrived!

I met many of you last week at the Midwest Homeschool Convention in Cincinnati and next week (April 23-25) I’ll be in Tulsa, OK at the Oklahoma Christian Home Educators conference. It’s the first time that I’ve been to Oklahoma, so I get to check another state off of my list!

I’ll be speaking on several topics including micro business for teens, career exploration, leading a homeschool co-op and becoming an author.

If you’re not near Tulsa, maybe we can meet up at these conventions:

 

Can’t make it to any of these conventions? Listen to my podcast, The Dollars and Sense Show.

Recent podcasts include:

  • We’re Not Raising Children, We’re Raising Grown Ups
  • Warnings Against Frugal Homeschooling
  • Has Your Homeschool Group Lost Its Tax Exempt Status

Carol Topp

Are discounts to board members taxable compensation?

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My homeschool group gives a fee waiver of our dues to our board officers. Would that discount be reported to our officers as taxable compensation?

Melissa

 

Melissa,

This is an excellent question because I’ve encouraged homeschool groups to offer discounts on membership fees to their volunteers or board members as a way to show appreciation.

But as my blog post, Is this a gift or compensation to a homeschool leader?, points out, compensation to board members is taxable income.

So I did a little research. Unfortunately, I didn’t find a clear answer.

I found advice like this (my emphasis added in bold):

“It is not illegal for a nonprofit to compensate its board members with reasonable fees unless prohibited by the organization’s bylaws. If compensation is authorized, it is advised that compensation amounts be set by independent directors or an independent compensation committee with input from outside advisors. It needs to be clear that compensation does not imply monetary profit. It is very important that board compensation be comparable to that of other nonprofit organizations and not deemed excessive by the IRS.”

from Center for Association Leadership

and this

When a board member has a conflict of interest—in other words, when a board member might receive some personal benefit as a result of a pending decision—he or she is required to explain the circumstances and avoid taking any part in the decision (stepping back in this way is often called “recusal”). IRS rules impose penalties on people (directors and others who work with nonprofits) who receive undue benefits — the rules governing this subject deal with “Intermediate Sanctions.”

from Idealist.org

and like this

Certain types of educational, religious and other tax-exempt, nonprofit organizations need to be careful that their leaders do not receive “excess benefits.” This can occur when a person who is defined by law as an “insider” receives unwarranted compensation.

An excess benefit is any kind of transaction in which an insider receives an economic benefit from an exempt organization that exceeds the fair market value of what the organization receives in return.

The (IRS) regulations list certain types of economic benefits that will be disregarded when considering whether an insider has received an excess benefit, including most nontaxable fringe benefits and expense reimbursement.

from Sibson Consulting

These sources tend to focus on excessive, unreasonable, unwarranted compensation and “undue” benefits to nonprofit board members. But most homeschool organizations are not excessive in the discounts they offer to board members or other volunteers.

So here’s my advice:

  • Keep your fee waivers to board members “reasonable.” Do not offer discounts that exceed the fair market value of the services the board members provide.
  • Have the amount of fee waivers decided by a separate, independent committee or put it to the vote of the full membership. The board should not vote themselves a fee waiver.
  • Add a provision to your bylaws allowing a fee waiver (or tuition discount) to board members or other volunteers. Consider granting a percentage discount instead of a dollar amount.

and finally,

IRS Pub 15-B states that “An educational organization can exclude the value of a qualified tuition reduction it provides to an employee from the employee’s wages”

Meaning qualified tuition discounts are a nontaxable fringe benefit.

By definition, an officer of a nonprofit is an employee, so reduced tuition (and I’d include fee waivers) is a nontaxable fringe benefit to your board officers.

 

Carol Topp, CPA

Are you raising a child or a grown up?

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In this latest Dollars and Sense Show podcast from Carol Topp, she asks re homeschool parents guilty of micro managing our teenagers or being helicopter parents?

The episode is part 1 of a two-part workshop Carol presented at the Great Homeschool Convention in Cincinnati last year in this episode of the titled, “Were Not Raising Children, We’re Raising Grown Ups.”

Carol discusses the dilemma in society today of sheltering our children too much and for too long so that they are ill equipped for adult life.

Listen here

 

Grab your handout here

Book recommendations mentioned in the podcast:

  • The Self-Propelled Advantage Joanne Calderwood
  • Parenting for the Launch Dennis Trittin
  • Battle Hymn of the Tiger Mother Amy Chua
  • Setting The Records Straight Lee Binz, TheHomeScholar.com
  • Phil Vischer podcast at PhilVischer.com

In Part 2 Carol shares important life skills your teenager needs to know, but are rarely covered in a textbook, such as: career choice, money management and living independently. She will share tips on how to impart important lessons in a natural way and share resources to help you raise a grown up!

Cincinnati Homeschool Convention

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I’ll be at the Great Homeschool Convention in Cincinnati this weekend, April 9-11, 2015. I hope you’ll come by my booth #1420 and say hi if you’re there!

I’ll be speaking on:
Real Life Skills Learned by Running a Micro Business Friday at 8:30 am
and
Career Exploration for High School Students on Friday at 2:30 pm

and I’ll have copies of my new book, Career Exploration for Homeschool High School Students for sale-hot off the presses!

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Frugal homeschooling has drawbacks

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I read Cindy West’s blog post Warnings Against Frugal Homeschooling on Our Journey Westward blog.

It caught my attention. What could possibly be wrong with frugal homeschooling?

Cindy opened my eyes to potential problems in using all free materials (or too many freebies) in homeschooling.

Listen to the podcast here

 

In the podcast Cindy mentioned a few guides she uses to help plan her children’s academic progress. Read about them on her blog post Homeschooling Frugally: A Cautionary Tale

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Cindy West is the author of NaturExplorers nature study guides and Charlotte Mason Homeschooling. Find them at Shining Dawn Books.

Create a board binder of important papers for your homeschool organization

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I was helping a homeschool leader apply for 501(c)(3) tax exempt status for her homeschool co-op when she mentioned that she had created a binder of important papers. That’s an excellent idea!

I suggested she create three binders and share them with her board members, especially:

  • The secretary who is the keeper of the paperwork for the organization
  • The treasurer who is responsible for the annual reporting to the IRS and their state.
  • The board president whose job it is to make sure everyone else is doing their jobs.

All the board members are responsible for management of the nonprofit and compliance with nonprofit laws. Having a binder of important papers that leaders can to pass down future leaders will make sure the organization is managed well and in compliance with all its reporting obligations.

Here’s what to put in your homeschool organization binders:

  • Employer Identification Number (EIN) letter from the IRS.
  • Articles of Incorporation from your state. This should be the official certified copy with a date stamp proving that your Articles of Incorporation were filed with your Secretary of State.
  • Bylaws. Date them so you have the most recent copy.
  • IRS 501(c)(3) determination letter.
  • IRS Annual Information Returns, the Form 990N, 990-EZ or full 990s
  • IRS Form 8822-B to change the contact name associated with your EIN or to change your address
  • Any state annual reports you file. (If you don’t know what reports you need to file with the state, contact me and I can help.)
  • Helpful articles from HomeschoolCPA.com
  • Books by Carol Topp, CPA especially Money Management in a Homeschool Organization
  • HomeschoolCPA.com website.

 

I highly recommend that you laminate or protect in plastic sheets these important documents.

Pass these binders down to the leaders who succeed you!

Carol Topp, CPA

Easy to understand financial reports for a homeschool organization

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I see a lot of financial reports from homeschool groups. Some are clear, easy to understand and helpful to the board members.

Others are a confused mess.


Read about the most common record keeping mistakes that homeschool groups make and how to correct them in my book Money Management in a Homeschool Organization. 


 

Recently, I looked over a financial report from a large homeschool organization. They had two goals:

  • Make the financial statements easy to read and helpful to their board.
  • Make it easy to prepare their annual Information return, IRS Form 990. Because their financial reports were confusing, I spent extra time and money reclassifying their information to fit the IRS annual information return.

I recommended that this homeschool organization create a Chart of Accounts similar to the IRS Form 990 and other nonprofit organizations.

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Organizing the Chart of Accounts by categories and using subcategories and indents will make the financial reports easier to read and understand. This Chart of Accounts clearly separates Program Expenses and Administrative Expenses. Categories and subcategories  can be added as needed, but I encouraged the organization to keep the list short to make it easier to read the financial statements.

This organized report will make preparing the Form 990 easier (and less expensive).

 

Carol Topp, CPA