IRS reports your homeschool group needs to file every year

IRS reports for homeschool groups

Your homeschool group should be filing some reports every year with the IRS. Did you know that?

Carol Topp, the HomeschoolCPA, explains what forms homeschool groups should be filing with the IRS in this episode of the Dollars and Sense Show podcast.

Listen to the podcast here

In the podcast, Carol answers common questions from homeschool leaders such as:

  • We were told if our income is under $25,000 a year, we don’t have to file anything with the IRS. Is that true?
  • What changed? We never had to file anything with the IRS before!
  • But we’re not a 501c3 organizations (or don’t want to be), so why do we need to file anything with the IRS?
  • We don’t like government intervention. Why do we need to have anything to do with the IRS?
  • Our homeschool group doesn’t make any profit, so why do we have to file a tax return?
  • We’ve never filed anything with the IRS? We didn’t know we had to! Now what? Will be owe back taxes?

Here’s a helpful FAQ page explaining the IRS Form 990-N.

How to get added to the IRS database to file the Form 990-N.

If all this is new to you, don’t panic!

We can arrange a phone consultation with your homeschool leaders. Together we can sort out what needs to be done.

Contact me here.

Carol Topp, CPA

 

Is this a gift or compensation to a homeschool leader?

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I just purchased your e-book, Paying Workers in an Homeschool Organization.   It only briefly touched upon the issue I am most interested in, and I am wondering if you have additional resources to answer my question.

Our Steering Committee decided years ago to provide certain gifts and perks to our chairman whom they were in danger of loosing due to her family suffering financially at the time.   The financial hardship has passed, but the gifts and perks remain. Currently, our chairman receives these annual benefits:

  1. $1,000 in gift cards (usually grocery and gas gift cards)
  2. $700 in classes for her children – these are the fees paid directly to the independent contractor teachers
  3. $100 -200 in waived registration fees (These are fees that the co-op charges members.)
  4. $160 in free pizza/drinks/snacks
  5. reimbursements for costumes and drama-related costs for her children (all other members pay for these)
  6. $300-$500 in cash gifts collected from members and given directly to the chairman.

She is the only one to receive gifts and perks out of the co-op budget.

This has been a very difficult conversation at our co-op because our chairman does do an enormous amount of work.

Thank you!

Anne in PA

 

Anne,

When I read the list of “perks” your chairman receives I was shocked! Wow!

Most board members are happy with flowers or a small gift card.

According to the IRS,  an officer who is paid is an employee. That means the gift cards and cash she received should have been reported to her on a W-2!  And your group was supposed to pay employer taxes (SS/Medicare) on her “wages” and file quarterly tax forms with the IRS! Ugh!!!

When you pay independent contractor teachers on her behalf, you are paying her personal expenses. The IRS considers payment of personal expenses as taxable compensation. See  http://www.irs.gov/pub/irs-tege/eotopici93.pdf

My recommendation is to stop these excessive payments immediately. The IRS calls this “excess benefits” and can impose penalties and a 25% tax on what they deem “excessive.”

Here’s an excellent article on excessive benefits (they consider paying personal expenses for members of an officer’s family to be “excessive.”)
http://www.nolo.com/legal-encyclopedia/reporting-excess-benefit-transactions-the-irs.html

Here’s what they recommend:

If your nonprofit discovers an excess benefit transaction with a DP, it should make good faith efforts to correct it. To do this, you must have the disqualified person repay or return the excess benefit, plus interest, and then adopt measures to make sure the same situation doesn’t occur again. The IRS will take into account these efforts in deciding what penalties to impose and especially whether to revoke the nonprofit’s tax exemption. (emphasis added)

You can, of course, start paying her a salary that she will report as taxable income to the IRS. But payroll is expensive and a lot more work for your treasurer.

 

Carol Topp, CPA

Accounting software recommendations for homeschool groups

I am thinking we will need to get QuickBooks to manage our finances.  Do we you recommend the nonprofit version?  I have not looked much into this yet.  Any input is greatly appreciated.

Nancy in CA

 

Nancy,

I don’t think you need the Nonprofit version of QuickBooks. Usually the Pro version is sufficient. The Nonprofit edition is helpful if you receive a grant and need to track grant expenses.

You may be eligible for a free version of QuickBooks. I wrote about it here: http://homeschoolcpa.com/quickbooks-for-free-to-nonprofits/

I discuss software options in a chapter in Money Management in a Homeschool Organization,
Cover Money Mgmt HS Org
You might want to consider cloud-based accounting programs such as Quickbooks online or Wave Accounting. I set up a small nonprofit on Wave recently. It’s working for them and it’s free!

Cloud-based accounting means that several people can access your accounting records from their home computers. That’s pretty nice. It also downloads your bank transactions automatically!

Carol Topp, CPA

Compensating board members can be troublesome!

man_with_bylawsI was recently reviewing the bylaws for a homeschool organization that stated,

Members of the Board of Directors may receive reasonable compensation for their services and may be reimbursed for actual expenses incurred in the maintenance of their duties

The board decided to pay its members for serving on the board. This board also selected its own members. There was no election or vote by the general membership on who served on the board.

It seems like a nice thing pay board members, right? They probably put in a lot of time and effort to run this homeschool group. What not pay them a bit for serving?

The IRS doesn’t like it.

A homeschool organization can compensate your board for their service, but compensation to officers is taxable income and the board members must be paid as employees. Other board members who are not officers can be paid as independent contractors and given a 1099MISC.

Did you catch that? If board members are compensated, the IRS laws say they must be paid as employees. That means creating paychecks, paying payroll taxes (Social Security and Medicare), preparing W-2s, quarterly filings with the IRS and your state, and may mean Unemployment and Workers Comp taxes!

Does your homeschool group really want to deal with payroll?

Also because this board appoints itself, it is self-dealing to vote itself compensation. This is what the IRS calls private benefit or inurement and it is forbidden by the IRS. Your organization could lose its tax exempt status if you practice inurement or too much private benefit. The IRS is serious about this!!

What counts as compensation? Here’s some guidance from the IRS http://www.irs.gov/pub/irs-tege/eotopici93.pdf

1) salary or wages
2) contributions to pension and profit sharing plans
3) unpaid deferred compensation
4) payment of personal expenses
5) rents, royalties or fees
6) personal use of organization’s property or facilities

Look at  4) payment of personal expenses, such as paying a hired teacher on behalf of the board member, is taxable compensation.

Reimbursement of expenses is OK, but compensation of board members for their service is taxable compensation.

Token amounts in the form of a gift card is usually a gift of appreciation, but excessive gift cards is taxable compensation.

Giving a reasonable (small) discount on fees can be a gift of appreciation, but paying personal expenses is taxable compensation.

My advice to this homeschool group was to stop paying board members compensation for serving on the board. Paying board members is very complicated, requires they be paid as employees and is probably illegal for this self-appointed board.

Carol Topp, CPA

 

How to get added to the IRS database and file the Form 990N

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Carol,
We’re a newly organized homeschool support group. Is there anything we need to do with the IRS to establish ourselves as a 501c7 social club, or do we just need to get our EIN and start filing the 990N?

Thanks again! I really appreciate your help. :)

Melissa

 

After you get your EIN (Employer Identification Number), you won’t be able to file the 990Ns just yet.

Since you have not applied on paper for 501(c)(7) status  (you can “self declare” 501c7 status and don’t have to file the paperwork), you are not in the IRS database (yet), so you need to call the IRS Customer Account Services at 1-877-829-5500 and be added to their database so you can begin filing the Form 990Ns.

It typically takes 6 weeks after you call to be added to the IRS database.

Say something like this, “We’re a brand new 501c7 Social Club and my CPA said I needed to get added to the IRS exempt organization database, so we could start filing the 990Ns.”

They will ask for your EIN and name, address and probably a contact name.

They may also ask what date your fiscal year ends. Many support groups operate on a calendar year, but some operate on a school year with a year end of June 30 or July 31. Look at the form you filed when you applied for your EIN to see what you chose as your fiscal year end.

They may ask if you have “organizing documents. They mean bylaws or Articles of Association. So tell them if you have bylaws or Articles of Association. Samples can be found here.

Finally, if they tell you you must file a Form 1024 to obtain 501c7 tax exempt status, tell them (with confidence) your CPA informed you that you can “self declare” tax exempt status as a social club and do not have to file the Form 1024.

Call the IRS early in the morning. They open at 8 am ET and you can usually get through pretty quickly of you call then, Record the date you call, the IRS employee name and their identification number.

Be sure you go online to file the Form 990N anytime after your fiscal year ends and before its due date which is 4 1/2 months after the end of your fiscal year. So if you operate on a calendar year, the 990N is due May 15.

Coming soon…how to motivate every member in your homeschool group

Way back in 2009, I was asked by Denise Hyde to review her book One By One: The Homeschool Group Leader’s Guide to Motivating Your Members.

It was fantastic! Really good. Really helpful. Here was my review:

“One by One is a book that every homeschool leader needs, but does not realize the need until it is too late! Every leader has difficulty motivating members or getting volunteers, but they only ask for help when it’s too late and they are tired, frustrated and want to quit! Instead, leaders should read Kristen and Denise’s very practical and encouraging book.

Inside you will find the three secrets to successfully motivating every member and then practical, real-life ways to apply those skills to everyone from moms to teenagers. I especially appreciated the true stories of how Kristen and Denise implemented everything they suggest.

They know their stuff and have a heart to share what they know with others. Take some of the advice, share it with your fellow leaders, apply it and you will find happier members, a more relaxed leader and a successful group!”

 

Well, now I’m pleased to announce that Denise is updating the book and I will be helping her get out the word about this terrific resource.

She’s going to set the price a bit (well, a lot) lower and offer it in print and in ebook format.

There is a little more work to do on the book, but it should be ready  in a few weeks.

I’ll send out an email when it’s ready. And I’ll probably have Denise on my Dollars and Sense podcast to help you motivate every member!

 

Carol Topp

 

Facebook party for homeschool leaders!

I’m looking forward to joining homeschool leaders in Williamsburg, VA for the Home Educators Association of Virginia Leadership Conference March 13-14, 2015.

But first I get to meet these leaders online at a Facebook Party!

What: Facebook Party for Virginia homeschool leaders

Who:  The sponsor is Home Educator Association of Virginia

When: Tuesday, January 27, 2015 at 8-9 p.m. ET

Where: https://www.facebook.com/groups/HEAVLeaderSupport/

At the Facebook Party I will share about the topics I will discuss at the Leadership Conference

Homeschool Leadership is Like Marriage—Know What You’re Getting Into!

Who’s Afraid of the Big, Bad IRS? How the IRS Sees Homeschool Organizations

Top(p) Ten Tips for Running a Homeschool Organization

There will also be time for questions from leaders.

See you on Facebook and maybe in Williamsburg, too!

Carol Topp, CPA

Ask your board these question to spark discussion and planning

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Does you homeschool organization’s board meeting always seem to focus on minor details and irritations? Do you lack direction and forward thinking?

Nonprofit guru TomOkarma shares some great ideas for you board members in  Board Presidents That Don’t Bore

He recommends taking 10 minutes at the beginning of your next board meeting and asked questions like:

  • If we were starting up our organization today brand new, what would it look like?
  • Would we recreate what we have now, or create something that looks different?
  • Say we just came off the most successful year we ever had from programming, fund development and organizational standpoints. What key steps or decisions did the board make resulting in these great results?
  • If we could do one thing right now that would improve our organization (whether internally or externally in our service delivery) and neither time nor money was an issue, what would that be?
  • Ask each member to explain your organization’s history, mission, and programs. It will be a good test!
  •  Pretend it was the worst year ever – what happened and how do we right the ship?
  • How about using the approach “Here’s what the organization is trying to achieve. In the past, it has achieved “A”, “B” and “C” in this way. It has not been able to achieve “D”, “E” and “F”. What do you think we should do in order to achieve these things?

Those ought to generate some discussion! You may have to set a timer to stop the idea flow and get down to business!

Or set aside an evening or a weekend to organize a board retreat and discuss these questions.

HS Co-ops Cover_400If you don’t have a board, make that a goal. My book Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out will help you find members to help you lead your group.

And later in 2015 I hope to offer a new resource to help you motivate every member of your homeschool organization…details to come!

 

Carol Topp, CPA

 

Should my homeschool co-op be giving any tax forms to our teachers?

Form 1099-MISC for 2010 with calculator and pencil on it

Hi Carol,

I had someone ask if our homeschool co-op will send them a 1099 for payment we made to her this year.  To the best of my knowledge, we have never done this before.  Is this something we should be doing?  Is there a guideline for how and when to do this?
-Trish

If you paid an individual more than $600 for their services in a calendar year, you are supposed to give them a Form 1099MISC and a copy goes to the IRS.

You do not have to provide 1099MISCs to corporations or for goods you purchased or for reimbursements of expenses.You only give 1099MISC to individuals who you paid for hired work.

It’s a good practice to collect the legal name, address and SSN from every person you pay for their services before paying them. Use IRS Form W-9.

I use a service Yearli.com to prepare the Form 1099MISC. They charge about $5/form, mail a copy to the recipient and to the IRS. It’s very easy to use.

The 1099MISC is due to the recipient by January 31 and to the IRS by Feb 28 each year.

Cover Money Mgmt HS Org

I cover paying workers in Chapter 12 of my book, Money Management for Homeschool Organizations.

Carol Topp, CPA
HomeschoolCPA.com

What is the difference between a homeschool support group and a homeschool co-op?

From the Facebook group I Am a Homeschool Group Leader, came this question:

After much reading, I have come up with a question… What is the difference between a homeschool group and a homeschool co-op?

I took over the leadership of our local, small, informal, unincorporated homeschool group last year. We’re a group of families that meet for unstructured socialization/play time twice a month. We offer classes for all age groups, workshops for moms & dads, date nights/coffee nights for moms & dads, monthly field trips, monthly activity days, and even some on-going activity days. After reading Carol Topp’s book  Homeschool Co-ops, and talking with the HSLDA support group liaison in regards to support groups, I am thinking that the group I am in charge of is a style of co-op. Is this right, wrong, both or neither?

-Jacquelyn

 

I make a differentiation between co-op and support groups because their tax exempt status is different in the eyes of the IRS.

Homeschool co-ops have an educational focus and qualify for 501(c)(3) status as educational organizations.

Homeschool support groups have social interaction and support as their focus and the IRS would classify them as 501(c)(7) Social Clubs.

Here’s an article explaining the differences. It includes a chart comparing 501(c)(3) (co-ops) and 501(c)(7) (support groups). Homeschool Groups As Social Clubs.

501c3_c7Comparison

As homeschooling grows, I’ve seen support groups change into co-ops and co-ops add support activities. Things are not as clear cut as my chart make it seem! So when I consult with a group I ask about:

  • their activities
  • where do they spend their time and their money?
  • what is the source of most of their income and expenses? (that’s how CPA’s think!)

From hearing about their activities and money, I can usually help discern if their group is a 501(c)(3) (educational co-op) or 501(c)(7) social club (support group).

It sounds like Jacquelyn’s group is a support group. Support groups fit the IRS 501c7 social club status and can “self declare” their tax exempt status without officially applying. (educational organizations with more than $5,000 annual gross revenues must apply for 501(c)(3) status).

But the IRS says all nonprofits-even small support groups- are supposed to be filing the annual Form 990N.  Read more here: http://homeschoolcpa.com/irs-form-990n-faq/

For Jacquelyn’s group and hundreds like them, the tipping point comes when the group gets an EIN from the IRS to open a checking account. That’s then the IRS knows about your group and it will need to start filing the annual 990N (it’s online and only 8 question. it takes about 5 minutes once a year).

Important disclaimer: I stated that a co-op is a 501(c)(3) and  a support group is a 501(c)(7), but that is  my interpretation of the IRS tax code. You will not find homeschool groups mentioned in the IRS rules and regulations. (PTL!)  I have discussed homeschool group classifications with IRS employees, read a ton and have attended workshops put on by the IRS. I’m a CPA and homeschooled for 14 years. I still belong to my support group, even though I retired from homeschooling 4 years ago. But I want to make it clear that I am using my CPA knowledge and homeschool experience to help homeschool organizations understand and comply with IRS regulations.

I hope that helps!

Carol Topp, CPA

HS Co-ops Cover_400

P.S. Jacqueline found Homeschool Co-ops: How To Start Them, Run Them and Not Burn Out helpful.

Maybe you would, too.