Paying Workers update will be available November 1

payingworkerscoveroutlined

I’m working hard at getting my book Paying Workers in a Homeschool Organization updated. It’s grown from a 20 page ebook, to a 130 page paperback (ebook version will be available soon as well).

Here’s the Table of Contents:

Chapter 1: Can You Pay a Volunteer?
Chapter 2: Paying Board Members and Other Leaders
Chapter 3: Employee or Independent Contractor? Worker Classification
Chapter 4: Guidelines for Hiring Independent Contractors
Chapter 5: Tax Forms for Independent Contractors
Chapter 6: Payroll Taxes for Employers
Chapter 7: Tax Forms for Employers
Chapter 8: Sample Independent Contractor Agreements
Chapter 9: Resources

 

The book is in the editing phase now and I hope it will be ready for sale by November 1st, 2016.

I know that can’t happen quickly enough for some of you! Just this week I received two emails from homeschool leaders asking if they are paying their teachers correctly.

I will also be offering a service to help assist homeschool leaders to make worker determinations. It will be a phone consultation followed up my helpful guidance on the next steps to take.

Be sure to sign up for my email list so you will be notified when the book is ready and when I will be offering worker determination consultations.

Carol Topp, CPA

Fine line between a homeschool co-op and running a micro school

school_house_400_clr_9041
Dear Carol,
I am considering homeschooling and I don’t really know where to begin. I have certification in Ohio to teach in a non-tax supported school. I would be team teaching in my home with one, and possibly two, other mothers. We would be teaching our own children, as well as children from one other family in which the parents both work. There would be 7-9 children. My children would be in 4th and 2nd grades.  I would be teaching the children in 8th and 9th grades, and possibly teaching part time the 4th grade children.
I have so many questions!  Is this legal?  Do we need to establish an organization and if so, what kind?
Thank you!
Faye T in Ohio
Faye,
I think what you are proposing is legal, but there are a lot of questions you’ll need to answer.

For-profit or nonprofit?

Is this your business?  You you want control and the ability to keep the profits for yourself? Or do you want to form an educational nonprofit and have the program run by a board of directors?

Micro school or homeschool co-op?

As for what type of organization to set up, it probably depends on how the other parents view this arrangement and your future plans. Are the parents legally homeschooling according to your state laws? Or should your program be registered as a micro school in your state.

The type of organization to set up (nonprofit or for-profit, micro school or homeschool program) also depends on the amount of money trading hands (if any) and the amount of time spent in this shared arrangement.

HS Co-ops Cover_400

If the parents are legally homeschooling, I would recommend limiting the shared teaching to no more than 2 or 3 days a week.  This would be a homeschool co-op. The rest of the time the students should be learning at home with their parent’s supervising them or the older students working independently.

My book, Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out would be a great help if you want to run this as a homeschool co-op.

This would be difficult for the working parents, I realize. With them, you need to discern if the parents are legally homeschooling, or if they want you to run a micro school. Be very cautious about taking on the responsibility of educational duties that belong to the parents such as granting a grade or a transcript, awarding high school credit, or even picking the curriculum.

If you are proposing to teach in this arrangement for 5 days a week (i.e, 100% of the children’s school time), then you would be running a micro school for those children. I would caution you against doing that at this point in your homeschool experience.

You are walking a fine line between homeschooling and running a micro school. It can begin to blur and get confusing very quickly.

I hope that gives you some food for thought.  If you need more specific advice on establishing this as a for-profit business or as a nonprofit, I would be available for a consultation.  We can discuss the pros and cons of for-profit vs nonprofit.

Carol Topp, CPA

Save

Save

Save

Save

Are discounts to homeschool board members taxable compensation?

gift_of_money_400_clr_6994

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.

The IRS defines compensation as:

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]  (emphasis added)

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

 So free or reduced fees that are educational benefits is taxable compensation to your board members.

So here’s my advice:

  • Keep your fee waivers to board members small and insignificant. The IRS does state that insignificant benefits to volunteers is not taxable income.
  • Consider showing appreciation with noncash gifts such as food, chocolate, or flowers. Buy resources to make their jobs easier including helpful books, hiring a payroll company (your treasurer will love it!), accounting software, etc.
  • 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. Its a conflict of interest.
  • Add a provision to your bylaws allowing a small fee waiver (or tuition discount) to board members or other volunteers. Consider granting a percentage discount instead of a dollar amount such as 20% off the fee.

 

payingworkerscoveroutlined

Have more questions about compensation to board members in your homeschool organization? My book Paying Workers in a Homeschool Organization is being updated and expanded and will be available in print and ebook versions later in 2016. Sign up for my email list to get notice of when its ready!

 

Carol Topp, CPA

Save

Independent contractors and W-9 form

fromw-9

Carol,
I wanted to check with you about a sentence that is in our Independent Contractor Agreement. No one has ever given us a W-9 before even though they have signed our agreement. Why are the contractors submitting any tax related information to us? I thought they were to complete all of that completely on their own. Is that part necessary?

Thank you so much!!!
Tanya B

Tanya,

The W-9 is the official way to collect an Independent Contractor’s name and SSN or business name and EIN (Employer Identification Number).   This information is needed if you pay them over $600 a year and issue them a 1099-MISC.

You can get the Form W-9 from the IRS website.

The W-9 is also the unofficial way to determine if you are dealing with ethical people. Some people do not like giving their information on a W-9 because they were not going to report the income on their tax return.  Having them fill in a W-9 indicates that your organization obeys the law and expects them to obey the law as well.

Your organization keeps a copy of the W-9 filled in by the Independent Contractor. You do not sent it into the IRS.

payingworkerscoveroutlined

Have more questions about paying workers in your homeschool organization? My book Paying Workers in a Homeschool Organization is being updated and expanded and will be available in print and ebook form later in 2016. Sign up for my email list to get notice of when its ready!

 

Carol Topp, CPA

 

How to close down an EIN for a tax exempt organization

stick_figure_workstation_400_clr_2044

Closing an EIN for a tax exempt organization is described at the IRS website: https://www.irs.gov/businesses/small-businesses-self-employed/canceling-an-ein-closing-your-account 

Information for Exempt Organizations

If you applied for an EIN for an exempt organization that:

(1) never applied for formal exemption,

(2) is not covered in a group ruling, or

(3) never filed an information return,

send a letter requesting the closing of your account to:

Internal Revenue Service
Attn: EO Entity
Mail Stop 6273
Ogden, UT 84201

or you may fax it to (801) 620-7116.

State the reason you wish to close your account. If you have a copy of the EIN Assignment Notice that was issued when your EIN was assigned, you should include that when you write. Otherwise, be sure to include the complete legal name of the entity, the EIN, and the mailing address.

 

Read the 3 criteria listed above carefully. If your organization fits all of the criteria, then write a letter to the IRS and give the reason you are closing your EIN. Usually it is because the organization dissolved or ceased its operations or activities.

If you fail one of the criteria, the IRS has different instructions. https://www.irs.gov/charities-non-profits/termination-of-an-exempt-organization.

You will have to file one more 990-N for the old organization and check “Yes” to the question “Has your organization terminated or gone out of business?” If you typically file the Form 990 or 990-EZ, than check the Terminated box in the header area on page 1.

Additionally, you will need to file a Schedule N, Liquidation, Termination, Dissolution, or Significant Disposition of Assets with your Form 990 or 990-EZ. If you file a 990-N, there is no Schedule N to file.

 

Carol Topp, CPA

Can I avoid the expense of hiring employees by being a 501c3?

taxes_money_rolls_pc_400_clr_1724

I run a homeschool tutorial in Texas as my small business. My tutors should be classified as employees according to the IRS rules. Due to the expenses and paperwork involved with hiring employees, I would like to set up a 501(C)(3).

I would like to hire you to help me with the process of setting up our local group as a 501(c)(3). Can you help me begin the process of setting up as a 501(c)(3)?

B in Texas

Dear B,
You should understand that having 501(c)(3) tax exempt status does NOT change the employer or payroll taxes you would have to pay.

501(c)(3) tax exempt status only grants nonprofit organizations tax exemption from federal income tax, not the payroll taxes. In other words, nonprofit tax exempt organizations still have to pay payroll taxes such as SS/Medicare, workers comp, unemployment insurance premiums.

Additionally, forming your business as a nonprofit organization means that you are no longer in control of the organization, nor does the money belong to you. The organization must be run by a board. The board can hire you as an employee, but they can also fire you.

Because you are converting a for-profit business to a nonprofit organization, you are not eligible to use the IRS’s short online Form 1023-EZ application form. Instead you will have to use the longer Form 1023 to apply for 501(c)(3) tax exempt status.

So you need to carefully consider your motives in forming a nonprofit, tax exempt organization. It should be done for reasons other than the expense and paperwork of hiring employees, because that burden will still exist as a 501(c)(3) tax exempt nonprofit organization.

PayingWorkersCoverNeed help understanding the rules regarding paying workers in your homeschool organization? My book Paying Workers in a Homeschool Organization will explain the difference between employees and Independent Contractors and the necessary forms to file.

Carol Topp, CPA

Save

How the IRS defines a school

school_icon_sticker_800_clr_15238

I’ve found your website very helpful.  We are working on starting a “school” which will initially offer a 3 to 5-day program for 5-10 year olds who are being homeshooled.  We would like to obtain 501c3 status.  My understanding is we can call ourselves a school, but I’m wondering if homeschooling needs to be mentioned in the 1023 application or if it just causes complications.  Is it simpler to state that we offer 3 and 5 day programs for educational enrichment for kids aged 5-10 and leave it to the parents to address the homeschooling issue?  They notify the state they are homeschooling and follow the state regs on that.  We are located in Maine.  Thanks for any guidance, thoughts, or advice.

Chris in Maine

 

Chris,

I have helped over 75 homeschool organizations receive tax exempt status. I’ve had no difficulty using the word “homeschool” in the IRS application. I usually state that all families are legally homeschooling in their respective states.

You could call yourself a school, but the IRS has a pretty narrow definition of “school” and there is an additional form to fill out when applying for tax exempt status (Form 1023 Schedule B). Schools are ineligible to use the new, shorter Form 1023-EZ, as well.

The Form 1023 Schedule B requests information on your curriculum (list of courses, dates and times) and “evidence” that your teachers are “qualified” meaning state certifications or required training. They also request records of regular attendance, racial makeup of your student body, and a lease or deed, proving you have a regular place to meet. Take a look here http://www.irs.gov/pub/irs-pdf/i1023.pdf and scroll way down to page 17.

Most homeschool groups that use volunteer parents and vary the classes offered each year do not fit this IRS definition of  a school.

So they do not call themselves a school. They call themselves an “educational organization” or sometimes an “educational enrichment service.”

You asked if  “Is it simpler to state that we offer 3 and 5 day programs for educational enrichment for kids aged 5-10 and leave it to the parents to address the homeschooling issue?”
Well, as I said, I explain to the IRS that the program is for homeschooled students and, yes, the parents are responsible to be sure they are legally homeschooling.

I will review the Form 1023 application for 501c3 tax exempt status for organizations that prefer to fill out the application themselves. See details here: http://homeschoolcpa.com/services/501c3-tax-exempt-status/

 

IRS and Your Homeschool Org cover

My book The IRS and Your Homeschool Organization
explains the pros and cons of 501c3 status and offers tips to get through the application process quickly.

Carol Topp, CPA

 

Save

Save

Government Intrusion and 501c3 Tax Exempt Status for Homeschool Groups

IRS-Building1

Hi Carol,

I am part of a homeschool group in Colorado.  We do not have a non-profit status and most people in our group do not want to organize that much.  Some of the people in our group have had some experiences with 501c3 status that the government has made them open their group up to individuals that they would not normally allow in their group because they are a government entity (like permitting someone not in our faith to teach a class).

Thank you so much for your help to the homeschool community and for whatever answers you can give us.

Sincerely,
Michelle P

 

Michelle,
Good for you in wanting to make sure that you are doing things properly in your homeschool group.

Your people are mistaken. Receiving 501(c)(3) tax exempt status does not make your organization a government entity; it simply means that you are exempt from paying income tax on your profit and donors can make tax-deductible contributions.  It’s a tax status.

501(c)(3) status does not mean you  must open up your group to everyone. You are free to set membership requirements and choose who teaches a class. Does a Catholic school have to allow non-Catholics teach in their school?  No. Sometimes a Catholic school may hire non-Catholic teachers, but the teacher usually must agree to uphold Catholic principles.

 

IRS and Your Homeschool Org cover

My book, The IRS and Your Homeschool Organization explains the pros and cons of applying for tax exempt status and the process and tips for getting approved.

The process to become tax exempt is not as scary or as difficult as it used to be. In 2014 the IRS introduced an easier, online application for small nonprofit organizations, the Form 1023-EZ.

 

Carol Topp, CPA

Save

Embezzlement: Could It Happen in Your Homeschool Group?

thief_stealing_credit_card_400_clr_7276
From the Ohio Society of CPAs comes this warning:

Small nonprofits ripe for embezzlement

They’re often diligent, caring workers, and yet tempted by seemingly easy cash.

Working on the inside, thieves can hit school groups, athletic leagues and churches, especially when they’re surrounded by trusting colleagues and loose security.

And according to one expert, because of the disgrace and embarrassment that the crime brings an organization, their transgressions often are not reported.

The median loss to fraud for religious, charitable and social-service organizations was $106,000 last year, according to an annual survey by the Association of Certified Fraud Examiners. “We estimate that organizations lose about 7% of their net worth to fraud each year,” said Scott Patterson, the association’s spokesman.

“There are so many people doing the good work that nobody steps back to say, ‘Should we begin looking at ourselves. We’ve grown. We better put some checks and balances in,'” said Gary Zeune, a fraud expert whose speakers bureau, “The Pros and Cons,” travels the country. “The only people who can steal you blind are those you trust and who don’t have controls.”

Smaller organizations, such as school parent-teacher organizations, are often vulnerable because neighbors and friends are reluctant to offend by suggesting that dishonesty is possible.

“This is typically mothers stealing from their own kids,” Shaw said. “The kids are the shills out there selling cookie dough or doing the walk-a-thon, and the mothers are stealing it.

“If the board is too embarrassed to have checks or balances, they need to have a new board,” she added. “But if you’re an honest person, you shouldn’t be insulted by having a second set of eyes.”

I’m sad to hear about embezzlement taking place in a homeschool groups, but I know from homeschool leaders that it can and does happen!

How can you prevent embezzlement?

1. Sign up for my newsletter (upper right corner of the website) and receive my report “Best Financial Practices for Homeschool Groups.” If you already belong to my mailing list and still want the report contact me and I’ll send you a copy.

Cover Money Mgmt HS Org2. Buy Money Management in a Homeschool Organization and read Chapter 9: Fraud: It Couldn’t Happen to Us. I outline some guidelines for groups to avoid embezzlement such as:

  • Have a separate checking account in the organization’s name
  • Appoint a treasurer
  • Have bank statements mailed to the board chair, not the treasurer
  • Have the board chair, not the treasurer to sign checks
  • Require regular financial reports
  • Prepare a budget

Keeping you safe,

Carol Topp, CPA

Save

Save

Aplos Accounting for Nonprofits: Better Than Quickbooks?

 

 

I just read a review of Aplos Accounting by Vickey from FreeChurchAccounting.com.

She writes,

One of the great things about Aplos software is that it is made specifically for nonprofits and churches. Aplos was designed by a CPA/Executive Pastor so each section of the software was made with a non-accountant in mind so it’s simple to manage you organization’s accounting even if you don’t have any accounting experience!

Aplos software is set up like a check register so entering transactions is just like entering payments and deposits in your checkbook. You can also import your transactions through the bank integration module.

Read Vickey’s full review of Apolos.

The software is cloud-based, not desktop-based so it’s easy for a new treasurer to take over. It’s also possible for several people to access the financial records including an accountant (like me) who may help your organization prepare the annual IRS Information Return, Form 990.

Apolos charges $25/month and Vickey offers a 25% discount for the first 6 months.

They also offer a Quickbooks buyback program.

Check out Apolos Accounting with a 15 day trial.

 

Carol Topp, CPA

Save

Save