Give me your opinion!

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I like it when people ask my opinion. How about you?
Well, I’m asking your opinion.

I’m forming an advisory team to offer me input on my products, services and website.

If you’ve bought one of my books, used my services, or visited my website, I’d like you to to consider joining my HomeschoolCPA Advisory Team.

It won’t be a big commitment. I know you’re busy. I value your time!

I launched a closed Facebook group where I’ll ask questions, offer surveys and gather your feedback. Additionally, I will send out surveys for those not on Facebook and hold an occasional conference call for you to chat with me about your suggestions.

Here are more details of what I’ve got planned.

If you’re interested in helping me you can:

or
Click here to submit your email.

Thanks for considering sharing your valuable input.

Carol Topp, CPA

Homeschool groups and huge fundraisers can be a bad thing!

Hey Carol –

I have been perusing your site as we are getting ready to start a new homeschool group (breaking off a larger group) in our area. Based on the info I have read, I feel that we identify the most as a 501c7 social group.

We will be offering clubs, fellowship, and field trips as our primary purpose. As a larger homeschool group, we have sold Discount Cards with local businesses/restaurants giving certain discounts to patrons. We sold them for $5 each. This has been a huge fundraiser for the bigger group. One box of cards is $5,000 (not all profit as there is expense from the printing).

My question is if as a new group we could sell these to help with our expenses and if the UBI would be taxable? We definitely want to do things correctly. The sellers would be the members of the group and done voluntarily.

I appreciate any help you can provide. Thanks!

Joyell

Joyell,
Your organization avoids the UBIT tax because the fundraiser is conducted substantially (or in your case, completely) by volunteers.

But you need to be careful that at least 65% of your total income comes from membership dues. Therefore, a maximum of 35% your income can come from fundraisers. Note that this is income, not the net proceeds of your fundraiser.

Something like this:

Your group’s total income = $10,000

Membership dues (this can include field trip income) must be $6,5000 or more (at least 65% of total income)
Fundraiser income cannot be more than $3,500 (max of 35% of total income)

One of the problems with this type of fundraiser is that it brings in so much income (and of course has substantial expenses as well), it can that it can jeopardize your 501(c)(7) tax exempt status because the fundraiser income exceeds 35% of total income.

This may mean that you are no longer tax exempt and will owe taxes on your surplus each year.

IOW, the IRS requires 501(c)(7) social clubs organizations to get most of their funds from members and not from selling products or other fundraisers.

I hope that helps.

Carol Topp CPA

Homeschool group not open to the public. Is that allowed?

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On your chart comparing the two types of tax-exempt status for homeschool organizations, under 501(c)(3),  it says membership is open to the public. However, many homeschool groups have membership qualifications. Some require members agree with a Statement of Faith or or not participate in a public-school-at-home program.
Thanks for your insights.

Dorothy

Dorothy,
You asked about membership in your homeschool group being open to the public. You do not have to throw open the doors to your homeschool programs and let everyone in. That could be logistically difficult and it could threaten the safety of the children participating in your programs.

I should clarify that 501c3 groups serve a public good-the education of children- but they may limit membership to their group.

Also, when the IRS determines a group is a public charity (and educational organizations are considered public charities), they mean the organization is funded by the public, unlike a private foundation which is funded by an individual or a family.

Remember, we, as Americans, have the freedom to assemble and that means we can determine who can join our groups and who cannot join. So membership requirements are allowed.

Sorry if that was not more clear.

Carol Topp, CPA

How you pay your homeschool teachers could affect the property tax exemption for your host church

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Several homeschool leaders have recently learned that the way that their homeschool groups are compensating the teachers (parents paying teachers directly) jeopardizes the property tax exemption of their host churches.

The problem

Some state laws limit churches renting their building for business purposes to only a few days a year.
One homeschool program was arranging for teachers to conduct classes for homeschooled children each week for about 30 weeks of the year. Each teacher was paid by the parents, so each teacher was essentially a business owner. That meant the church exceeded the state-set limit on business activities.

This situation can put a church’s property tax exemption in jeopardy. If the church ceased hosting the homeschool program, , it could mean the end of many homeschool programs hosted in churches.

What can a homeschool group do?

I read about these state laws and the church’s limits on business activities. The reason co-op classes jeopardize a church’s property tax exemption is because the class teacher was a business and exceeded the state limit on days a church can host for-profit businesses in its building.

 

I recommended that homeschool organizations in this situation begin collecting the money from the parents and pay the teachers as employees or independent contractors hired by the homeschool group. Many homeschool organizations are 501c3 educational nonprofits. The state laws usually allows a church to rent space to a nonprofit if they have a charitable, educational or religious purpose.

 

It’s more work for the board to negotiate the payments and for the treasurer to prepare the checks and give 1099MISC or W-2 forms to the teachers, but it keeps the homeschool program running and the church keeps its property tax exemption.

 

Can this happen to my homeschool group?

So here’s some issues for all homeschool leaders who conduct classes in churches to consider:

  • Be aware of the limits on business activities conducted by churches in your state property tax exemption laws.
  • Talk to your host church about this issue. Ask what they know about limits on business activity for churches.
  • If your property tax laws limit your host church, consider changing how your teachers are paid, so that the church is not renting space for business activities to for-profit businesses (i.e., individual teachers)
  • Be sure your activities are in line with the religious and charitable purposes of your host church.

Note that this affects churches’ property tax exemption, not their income tax exemption at the federal or state levels.

I’ll keep an eye on this issue and keep you informed. Sign up for my email list (bottom right corner) to be notified of future blog posts on this issue.

Carol Topp, CPA

Opening another branch of a homeschool co-op

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I am in the process of organizing a co-op. We are actually going through another established co-op and establishing a north branch of the existing co-op. They are already a 501(c)(3) and carry liability insurance so we would be under them. We would be the same program but in our location. However, we would need to raise most of our own funds. Do you see any issues or possible issues with this set-up?

How would we go about keeping our money appointed to the correct branch?
I appreciate any help!
Corrinn

 

Corrinn,

I think your set up sounds great. It’s like a store with two locations. You could set up two separate checking accounts, both using the same EIN (Employer Id Number) from the original (parent) group. Your checking account could say “HOMESCHOOL CO-OP NORTH BRANCH”

Accounting Software

As for accounting software you might consider an online program such as Quickbook Online which lets you set up multiple “locations” or “departments.” I’ve been recommending WaveApps.com (it’s free) but I’m not sure if they can set up multiple locations/departments like you want. Of course you could set up separate Wave accounts since you’ll probably have separate checking accounts.

Transparency

I recommend that the Treasurer of parent organization be a check signer on your checking account and be given access to your bank account and accounting software (that’s why online accounting software would be helpful). You need to be open and transparent to the parent group.

Joint IRS Returns

At the end of your fiscal year all your income and expenses will need to be reported to the parent group so it can be added to their income and expenses on the IRS Annual Form 990 Information Return.

Good luck!

Carol Topp, CPA
HomeschoolCPA.com

Can you discount a homeschool co-op class in lieu of paying the teacher?

Are volunteer teachers in a homeschool co-op allowed to get free or discounted classes? Do they need to claim the amount on their yearly income?

We have independent contractors  who work for our homeschool organization. Are they allowed to get discounted classes instead of getting paid their full amount of payment?

How do we do the paperwork properly?

Mr M.

 

Dear Mr M,

Volunteers are treated differently than your paid independent contractor teachers, so I will respond to each separately.

Volunteers

Volunteers may receive discounts or free classes from your homeschool organization. It is not included in their taxable income, if it is insignificant. It should be understood by everyone that the discount is in appreciation of the volunteer’s efforts and not payment for services. The volunteers should understand that discounts are not guaranteed.

Independent Contractors

Independent Contractors (IC) can receive discounts from their class fees, but the discount needs to be added to their compensation when reported on a 1099MISC. Even if the IC doesn’t receive an 1099MISC from you, the value of the discounted classes should be reported as income on his or her tax return. You may want to explain that in a  letter or include it in your written Independent Contractor agreement.

Can you discount a class in lieu of paying a teacher?

Homeschool organizations should not be offsetting an independent contractor’s payments for her services, which is taxable earned income, by the amount the contractor owes for her child to attend your co-op classes,  which is a personal  expense (i.e. not tax deductible).

I recommend that the teacher should be paid the full amount earned and in a separate transaction, she should pay her tuition to your co-op. 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 IC needs to report to the IRS. It’s mixing taxable income with a non-tax-deductible personal expense.

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

 

Tracking payments to homeschool co-op teachers

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If teachers are paid directly how does the homeschool co-op know about who has paid in order to keep track of payments?

 

It’s very common got homeschool co-ops and tutorial programs to ask parents to pay the teachers directly and not pay through the co-op or homeschool tutorial. This eliminates payroll paperwork and lessens the income and financial transactions flowing through the homeschool organization (and this makes life easier on your treasurer!).

Your homeschool co-op doesn’t need to keep track of which families paid the teachers. It’s the teachers job to get payments from the families.

The teachers are independent contractors and therefore are supposed to bear the burden of the risk of not getting paid. Your co-op should not carry this risk.

The IRS definition of an independent contractor says “Having the possibility of incurring a loss indicates that the worker is an independent contractor.”

Source: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Financial-Control

I hope that helps,

Carol Topp, CPA

Workshops on micro business, career exploration and more in Cincinnati 2016

Here are my workshops for the Great Homeschool Convention 2016 in Cincinnati.

MBizIdeas2016 A fun, fast-paced workshop to inspire and equip teenagers to start their own business.

CareerExpl2016 Help for teenagers who have no idea of what they want to be!

 

Author2016 Dream of holding your book in your hands?

 

I hope I see you there! Don’t forget to stop by my booth #1411 and chat a bit.

 

Carol Topp

 

Independent Contractors: Type of Relationship

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We’ve looked at two factors the IRS uses to distinguish between employees and independent contractors: Behavioral Control and Financial Control. This blog post will discuss the third factor: Type of Relationship. 

As you read through this factor and the other two, consider how your homeschool group is treating its workers. Make changes to clearly distinguish your employees from your independent contractors.

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Type-of-Relationship

Type of relationship refers to facts that show how the worker and business perceive their relationship to each other.

The factors, for the type of relationship between two parties, generally fall into the categories of:

  • Written contracts
  • Employee benefits
  • Permanency of the relationship
  • Services provided as key activity of the business

Written Contracts

Although a contract may state that the worker is an employee or an independent contractor, this is not sufficient to determine the worker’s status.  The IRS is not required to follow a contract stating that the worker is an independent contractor, responsible for paying his or her own self employment tax.  How the parties work together determines whether the worker is an employee or an independent contractor.

Employee Benefits

Employee benefits include things like insurance, pension plans, paid vacation, sick days, and disability insurance.  Businesses generally do not grant these benefits to independent contractors.  However, the lack of these types of benefits does not necessarily mean the worker is an independent contractor.

Permanency of the Relationship

If you hire a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that the intent was to create an employer-employee relationship.

Services Provided as Key Activity of the Business

If a worker provides services that are a key aspect of the business, it is more likely that the business will have the right to direct and control his or her activities.  For example, if a law firm hires an attorney, it is likely that it will present the attorney’s work as its own and would have the right to control or direct that work.  This would indicate an employer-employee relationship.

 

Read the other factors that determine worker status:

Financial Control

Behavioral Control

And always remember:

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

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Still confused? Maybe my book, Paying Workers in a Homeschool Organization can help. It’s a short ebook, designed just for homeschool leaders.

Carol Topp, CPA

Great Homeschool Conventions-Cincinnati 2016

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I always look forward to the largest homeschool convention in the US-Great Homeschool Conventions in Cincinnati.

Not only is it my home, but I get to meet hundreds of homeschool parents and students.

 

This year, I’ll be giving three workshops:

30+ Micro Business Ideas for Teens (and Parents!) Friday, April 1, 2016 at 10:00 pm

Career Exploration for High School Students Friday, April 1, 2016 at 5:30 pm

How You (or Your Child) Can Become a Published Author on Saturday, April 2 at 2:30 pm.

Come by my booth #1411 and introduce yourself!

I hope to see some of you there!