Tax return for a Classical Conversations homeschool business

We are a new Classical Conversations community set up as a single member LLC. We only had 2 students and so my tutor’s income was below the requirement for filing 1099s. Same for me. However, I saw that I shouldn’t be filing a 1099-MISC for myself. What should I be doing?

And what is considered profit for a CC community?

Esther

 

Thank you for emailing me your question about taxes and your Classical Conversations (CC) business.

As a single member LLC, you are a sole proprietorship and you report your income and expenses from your CC business on a Schedule C Profit or Loss from Business as part of your Form 1040.

All your income from the tuition and fees charged to your customers (i.e. parents) goes on line 1 Gross receipts or sales. In this example the total income is $4,500.

Your payment to your teacher(s) goes on Line 11 Contract Labor.  In this example a total of $2,250 was paid to independent contractors. Other expenses go in the categories listed in Part II of the Schedule C. Other expenses made the total expenses sum to $2,982 as shown on Line 28.

The profit is shown on Line 31> It is calculated  from Gross Income (Line 7 on the form) minus Expenses (Line 28). The profit is what you get to keep (and pay taxes on!) as the business owner. In this example the profit is $1,518. This amount will carried forward to the first page of the Form 1040 to Line 12 Business income or loss.

This Youtube video may help: https://youtu.be/qd5etmtyn9s It’s not specific to homeschooling businesses or Classical Conversations, but it goes over the Schedule C line-by-line in about 20 minutes.

P.S. I am no longer taxing new tax clients, so I recommend you find a local CPA to help you in preparing your tax return. To find a local CPA or accountant I recommend you try Dave Ramsey’s Endorsed Local Providers and Quickbooks Proadvisors. A lot of CPAs and accountants listed on these sites specialize in small businesses.

Carol Topp, CPA
HomeschoolCPA.com
Helping homeschool leaders

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Will you be at TTD-Nashville? I could use your help!

Image result for gaylord nashville image
Will you be at the Teach Them Diligently Homeschool conference in Nashville March 30-April 1, 2017?
I’ll be there! Come by my booth and say hello.
I could use some help manning my booth while I speak and I pay well!
Carol Topp, the HomeschoolCPA, is needing some booth helpers during the TTD-Nashville conference March 30-April 1.
I need a booth helper during 3 time slots of about 2 hours each around my speaking times on Friday and Saturday. I just need someone to be at my booth while I speak. If you are familiar with my HomeschoolCPA or Micro Business for Teens books that would be a big help. Even better if you can make a sale using a Square device on an iPhone. I’ll show you how!
I will gladly offer you a $25 gift card for each 2-hour shift, reimburse your parking, and pay for your meal.

 

If you can help me for a 2-hour shift on Friday (2:30-4:30 pm) or Saturday (8:30 am-10:30am and 4:30-6:30 pm) please contact me at Carol@HomeschoolCPA.com.
Please share this with your friends and homeschool group members.

What Homeschool Leaders Don’t Know About Losing Tax Exempt Status

What Homeschool Leaders Don’t Know About Losing Tax Exempt Status

Carol Topp, CPA, the HomeschoolCPA will share tips on important issues that homeschool leaders may not know about. This episode will focus on helping homeschool leaders know what to do if their organization has lost its tax exempt status.

Listen to the podcast

Does your homeschool group need to pay taxes?

Could they avoid paying taxes by being a 501c3 tax exempt organization? Do you know the pros and cons of 501c3 status? Do you know what 501c3 status could mean for your homeschool group?

I have the answers for you in my book The IRS and Your Homeschool Organization. The information I share in my book has been helpful to homeschool support groups, co-ops, music and sports groups and will help you understand:

  • The benefits of 501c3 status
  • The disadvantages too!
  • What it takes to make the IRS happy
  • What your state requires
  • Why your organization should consider becoming a nonprofit corporation
  • What is the difference between nonprofit incorporation and tax exemption
  • IRS requirements after you are tax exempt

Click Here to request more information!

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Accepting contributions for a needy family

Hi Carol,
We just suddenly lost a dad from our homeschool co-op.  He leaves a wife and 6 children.  We have been receiving donations for them left and right through PayPal.  We will also start receiving checks from various people and churches.
As a 501c3 organization, what is our responsibility with donation letters and such?  For PayPal payments, I’ve been forwarding the receipt to the donor, thanking them for their donation and reminding them to hold on to their PayPal receipt for tax purposes as we are a 501c3 and their donation is tax deductible.
MG in NJ

So sorry for the loss of one of your fathers. How horribly sad.

What are you doing with these contributions? Are you passing them along to the family who lost their father/husband? I imagine that you are and that is very kind of you, but then these are not tax deductible donations. These contributions are gifts to the family (funneled through your co-op). Gifts to an individual family are NOT tax deductible donations to the donor.

The IRS rules for tax deductible donations are quite clear: contributions earmarked for a certain individual (or family) including those that are needy or worthy are not deductible.

IRS Publication 526

Contributions to Individuals

You can’t deduct contributions to specific individuals, including the following.

Contributions to individuals who are needy or worthy. You can’t deduct these contributions even if you make them to a qualified organization for the benefit of a specific person. But you can deduct a contribution to a qualified organization that helps needy or worthy individuals if you don’t indicate that your contribution is for a specific person.

The reason the donors funneled these gifts through your homeschool organization is that they want a tax deductible receipt, but you should not give the donors a tax deductible receipt for these gifts that are designated to go to the specific family.

My advice at this point is to thank people for their contributions, but do not give out tax deductible receipts. Some nonprofit experts advise that you tell the donors that their gift is not a tax-deductible contribution.

 

P.S. You might want to contact The Homeschool Foundation, a benevolent fund established by Home School Legal Defense Association (HSLDA). They have a fund just for widows to help purchase curriculum.

Carol Topp, CPA
HomeschoolCPA.com

What Homeschool Leaders Don’t Know About IRS Annual Reports

 

What Homeschool Leaders Don’t Know About IRS Annual Reports

Carol Topp, CPA, the HomeschoolCPA will share tips on important issues that homeschool leaders may not know about the IRS Annual Reports. This episode will focus on helping homeschool leaders understand a report that the IRS requires from all tax exempt organizations–including your group! It’s called the Form 990.

Listen to the podcast

Carol Topp, CPA can help with:

Preparation of IRS Annual Return

Preparing the Form 990/990-EZ Annual Information Return for the IRS and your state. The Form 990/990-EZ is due 4 1/2 months after the end of your fiscal year.

This service involves several telephone calls and e-mails and copy of your financial statements (a QuickBooks file is preferred).

I also offer a service I call “Buying Peace of Mind”

This is a a review of IRS forms you have prepared yourself. You can save money by doing much of the work yourself. I will review Forms 1023 or Annual Form 990/990-EZ and offer my opinion and advice.

___________________________________________

Wow Carol!  Thanks so much – just the info you provided here is very helpful.  I look forward to speaking with you as I’m anxious to get started, but I want to do so in the best and most efficient way.  This is new territory for me – so I truly appreciate your guidance!

-Laine Discepoli, Glendale, OH

________________________________________

 

Click Here to request more information!

 

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Are homeschool groups “schools”?

Some homeschool groups look a lot like schools. They offer a full curriculum, there are teachers teaching classes, they rent space to conduct the classes, etc.

So is a homeschool program a school?

I’m a CPA, so I tend to follow the IRS definition of “school.” This blog post is filled with lots of IRS-ese. Dig in and slog through the details if you wish or just scroll to the bottom for my answer.

 

IRS definition of “school” is found in the Internal Revenue Code Section 170 https://www.irs.gov/irm/part7/irm_07-026-002.html#d0e549

IRC 170 (b)(1)(A)(ii) Exclusion—Educational Organizations

  1. Educational organizations described in IRC 170(b)(1)(A)(ii) and Reg. 1.170A–9(b)(1), such as primary schools and universities, are excluded from private foundation status under IRC 509(a)(1).
  2. IRC 170(b)(1)(A)(ii) organizations are commonly known as “schools.”
  3. An IRC 170(b)(1)(A)(ii) organization must:
    1. present formal instruction as its primary function,
    2. normally maintain a regular faculty and curriculum, and
    3. normally have a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on

IRC Section 170 reference Reg, 1.170A-9(b)(1) which states:

An educational organization is described in section 170(b)(1)(A)(ii) if its primary function is the presentation of formal instruction and it normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. The term includes institutions such as primary, secondary, preparatory, or high schools, and colleges and universities. It includes Federal, State, and other public-supported schools which otherwise come within the definition. It does not include organizations engaged in both educational and noneducational activities unless the latter are merely incidental to the educational activities. A recognized university which incidentally operates a museum or sponsors concerts is an educational organization within the meaning of section 170(b)(1)(A)(ii). However, the operation of a school by a museum does not necessarily qualify the museum as an educational organization within the meaning of this subparagraph. (emphasis added)

In the Instructions to Form 1023 Application for Recognition of Exemption Under Section 501(c)(3), the IRS gives a clearer definition of a school:

An organization is a school if it:

  • Presents formal instruction as its primary function.
  • Has a regularly scheduled curriculum.
  • Has a regular faculty of qualified teachers.
  • Has a regularly enrolled student body.
  • Has a place where educational activities are regularly carried on.

The term “school” includes primary, secondary, preparatory, high schools, colleges, and universities. It does not include organizations engaged in both educational and non-educational activities, unless the latter are merely incidental to the educational activities. Non-traditional schools such as an outdoor survival school or a yoga school may qualify.   The term “school” does not include home schools.

Answer “Yes” if you have a regularly scheduled curriculum, a regular faculty of qualified teachers, a regularly enrolled student body, and facilities where your educational activities are regularly carried on. Submit evidence establishing that you meet these factors, as described below:

  • Evidence that you have a regularly scheduled curriculum includes a list of required courses of study, dates and times courses are offered, and other information about how to complete required courses.
  • Evidence that you have a regular faculty of qualified teachers, includes certifications by the appropriate state authority or successful completion of required training.
  • Evidence of a regularly enrolled student body includes records of regular attendance by students at your facility.
  • Evidence of a place where your exclusively educational activities are regularly carried on includes a lease agreement or deed for your facility.

If you answer “No,” do not complete Schedule B. You do not meet the requirements of a school and you will need to go back to Part X, line 5, to reconsider your public charity status.


I highlighted a few portions to emphasis a crucial point. Most instructors at homeschool organizations do not fit the definition of “qualified” faculty because they are not certified teachers by the state and may not have training in the subject they are teaching. That doesn’t make them unqualified for your purposes; it just doesn’t fit the IRS’s definition of “qualified.”

I do not consider most homeschool programs to be schools.


If homeschool programs are not schools, what are they?

They are educational organizations.

 

Carol Topp, CPA

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What Homeschool Leaders Don’t Know About Tax Exempt Status

 

Carol Topp, CPA, the HomeschoolCPA, will share tips on important issues that homeschool leaders may not know about.

This episode will focus on helping homeschool leaders understand tax exempt status. It’s easier than ever to get tax-exempt status. Should your group apply?

Listen to the podcast

 

Tax Exempt Status for Small Nonprofit Organizations

Contact HomeschoolCPA, Carol Topp, CPA, to arrange for assistance in applying for 501(c)(3) tax exempt status.  This service involves several telephone calls and e-mails.

Carol offers a variety of services:

  •  IRS Streamlined Form 1023-EZ Application
  • Full 501(c)(3) Application
  • Full 501(c)(4) or 501(c)(7) Application
  • State filings
  • Review of Self Prepared Application

Click Here to request more information!

Carol Topp, CPA

HomeschoolCPA.com

Helping homeschool leaders with tax and legal issues

 

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What should a Classical Conversations tutor do if she thinks she’s misclassified?

 

How should Classical Conversations’ tutors handle their employment situation? They are required to use a specific curriculum, during a specific time and attend training.

In light of Landry Academy switching to employees but still not being able to stay in business, I am wondering what your thoughts are.

-KT

 

KT,

The closing of Landry Academy in late December 2016 was certainly sad and an eye opener. I don’t know the details of what happened to them, but it does seem they underwent an IRS audit and had to reclassify their teachers as employees.

I usually advise the business owners such as a Director of a CC community, but you are asking what should the CC tutor (i.e. the worker classified as an independent contractor) do if she thinks she is misclassified and should be treated as an employee.

1. Always report in full ALL your earned income received from CC on your tax return, even if you do not receive a 1099-MISC or W-2.

2.  Discuss your classification with your CC Director. Express your concern for her potential liability if she is misclassifying workers. Tell her about this IRS website and my book Paying Workers in a Homeschool Organization. I also offer a service for business owners like CC Directors or nonprofit leaders to help them correctly classify and compensate their workers.

3.  Discuss your classification with your tax preparer. Seek his or her opinion on whether you wish to take advantage of the IRS reporting program. Visit this IRS page for details. If you do not have a tax preparer, you can arrange a phone consultation with me to discuss your particular situation.

Most important is for you to follow #1: Report all your earned income on your tax return even if you do not receive a 1099-MISC from your CC Director.

Carol Topp, CPA
HomeschoolCPA.com
Helping homeschool leaders (and tutors!)

 

 

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What Homeschool Leaders Don’t Know About Non Profit Status

Carol Topp, CPA, the HomeschoolCPA, will share tips on important issues that homeschool leaders may not know about.

This episode will focus on helping homeschool leaders understand nonprofit status for their groups. What does it take to be a nonprofit? Only two things! Did you know that nonprofit status is not the same thing as tax exempt status?

 

Listen to the podcast

 

Does your homeschool group need to pay taxes?

Could they avoid paying taxes by being a 501c3 tax exempt organization? Do you know the pros and cons of 501c3 status? Do you know what 501c3 status could mean for your homeschool group?

I have the answers for you in my book The IRS and Your Homeschool Organization. The information I share in my book has been helpful to homeschool support groups, co-ops, music and sports groups and will help you understand:

  • The benefits of 501c3 status
  • The disadvantages too!
  • What it takes to make the IRS happy
  • What your state requires
  • Why your organization should consider becoming a nonprofit corporation
  • What is the difference between nonprofit incorporation and tax exemption
  • IRS requirements after you are tax exempt

Click Here to request more information!

Carol Topp, CPA

HomeschoolCPA.com

Helping homeschool leaders with legal and tax issues

 

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CC Directors: Do not give yourself a 1099-MISC

I have spoken to several Classical Conversations (CC) Directors lately who tell me that they gave themselves a 1099-MISC to report what they paid themselves.

But this is not correct! CC Directors should not give themselves a 1099-MISC.

I can understand their confusion. These Directors are business owners of a Classical Conversations community offering classes for homeschool students and their parents in how to educate their children using classical methods. Typically, these Directors hire tutors as independent contractors to reach a class once a week and frequently the Directors also teach a class themselves.

They give their tutors a 1099-MISC to report their earned income and so they think they should give themselves a 1099-MISC as well. But this is not the correct way to report income as a CC Director.

As a business owner (and I’m referring to a sole proprietorship filing a Schedule C on their Form 1040) a CC Director is not paid as an independent contractor. Business owners are not “paid” at all. Instead they get to keep all the profit that the business makes. That profit is their “pay” or earnings from the business.

How to correctly report your income from your CC business

One Director told me that she reported her 1099-MISC as her total income on her Schedule C Business Income or Loss. But this is not correct. I explained that she needed to report all the income that the participating families paid her. That amount is her total income, not what she “paid herself” and reported on a 1099-MISC (incorrectly).

“Oh dear,” she replied, “I’ve been doing it wrong for three years!” Yes, she had been. 🙁

I explained that she needed to file a Form 1040X  Amended Tax Return to correctly report her income on her Schedule C for those prior years.

I also advised her to contact a local CPA to help her learn how to correct her tax returns and prepare it properly in the future.

How to correct a 1099-MISC

If you have given yourself a 1099-MISC, then you need to correct it ASAP!

Start by reading IRS Instructions to Form 1099-MISC page 10. Follow the instructions carefully. Check the CORRECTED box. Include yourself with $0 (zero) in Box 7  Non-employee compensation.

I recommend you contact a local CPA to help you file the corrected 1099-MISC.

If you’ve already prepared your tax return with the incorrect 1099-MISC, you’ll need to file a 1040X as well to amend your tax return.  It’s time to get professional help!


Business taxes and paying employees or independent contractors is not a guessing game! There are professionals like CPA and tax professionals who can help you file your 1099-MISC and tax returns correctly.

How to find a local CPA or accountant
I recommend you hire a local CPA or tax professional because they know your state and local laws best. If you do not already have a CPA or tax professional (and I don’t mean a store front tax preparation service) I recommend you try Dave Ramsey’s Endorsed Local Providers or Quickbooks Proadvisors.
A lot of CPAs listed on these sites specialize in small businesses.

Business Consultation

I am not accepting new tax clients, but I will offer a phone consultation for CC Directors, tutors and other homeschool business owners. Contact me to request a phone consultation.

 

Carol Topp, CPA

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