The IRS and Your Homeschool Organization
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
Table of Contents
Chapter One: The IRS and Homeschool Organizations
- Homeschool Contact With The IRS
- Government Intrusion into Homeschoolers’ Lives
- Historical Perspective on Charities and Taxes
- Does Tax Exempt Status Limit Homeschool Freedoms?
Chapter Two: What Does 501(c)(3) Mean?Nonprofit Status is Not the Same as Tax Exempt
- Nonprofit Status is Not the Same as Tax Exempt
- Definition of Tax exempt
- We’re Not 501(c)(3) and Don’t Want To Be!
- Homeschool Support Groups
- Comparison of 501(c)(3) Qualified Charity and 501(c)(7) Social Club
- What if We’re Not a Charity?
- Can My Homeschool Be Tax Exempt?
Chapter Three: Benefits and Costs of Tax Exempt Status
- Common Non Profit Forms
- Benefits of 501(c)(3) status
- Disadvantages 501(c)(3) status
Chapter Four: Alternatives to 501(c)(3) Status
- File for 501(c)(3) Qualified Charity Status
- Determine Eligibility of Other Tax Exempt Status with the IRS
- Ministry of a Church or Fiscal Sponsor
- Reorganize Your Group to Stay Small
- Pay Taxes
- How to Decide What to Do
Chapter Five: What Does Your State Require?
- Secretary of State’s Office
- Attorney General’s Office
- Department of Revenue
Chapter Six: 501(c)(3) Status: What Is Involved?
- Are You Ready?
- Writing a Mission Statement
- Establishing a Board of Directors
- Writing By Laws
Chapter Seven: Nonprofit Incorporation
- What is Incorporation
- Do You Need to Incorporate?
- What Does Incorporating Involve?
- Choosing Your Name Carefully
- Seven Great Reasons to Incorporate
Chapter Eight: Check List for Homeschool Organizations
- Seeking 501(c)(3) Tax Exempt Status
Chapter Nine: The Application Process
- Tips for IRS Form 1023
- Your Narrative
- A Board and Bylaws
- Financial Statements
Chapter Ten: We’re Tax Exempt! Now What?
- Annual Reporting to the IRS and Your State
- Unrelated Business Income Tax
- Disclosure Requirements
- Political limitations
- Conflict of Interest
Chapter Eleven: Tax Exempt Status Revoked
- History of Automatic Revocation
- Automatic Revocation
- How to Get Your Tax Exempt Status Back
Chapter Twelve: Resources
Chapter Four: Alternatives to 501(c)(3) Tax Exempt Organization
A homeschool leader recently wrote me, “Does my homeschool support group really need to apply to 501(c)(3) tax exempt status with the IRS? It seems like a lot of time and money. We have a small budget and we don’t accept tax deductible donations. Can’t we just operate as we are?”
Many homeschool leaders can identify with the leader’s situation above. This chapter will discuss the alternatives to applying for 501(c)(3) tax exempt status.
Many larger homeschool organizations, especially co-ops that have an educational purpose, seek 501(c)(3) tax exempt status for its many benefits:
- tax exemption from federal income tax
- ability to accept tax deductible donations
- ability to participate in fund raisers only open to 501(c)(3) charities
Seeking tax exempt status has many benefits, the foremost being tax exemption, but 501(c)(3) tax exempt status is not automatically granted. An organization must specifically request 501(c)(3) tax exempt from the Internal Revenue Service (IRS).
Many small nonprofit organizations mistakenly believe that they must apply for 501(c)(3) status when the reach a specific dollar amount, but that is not necessarily the case. Your organization should request tax exempt status when it has a financial surplus and wishes to avoid paying taxes on that surplus or wish to receive tax deductible donations. Sometimes there are advantages to applying while your organization is still small and young, such as reduced filing fees to the IRS.
Failure to request tax exempt status, means your organization could be liable for income tax on any surplus you have at the end of the year.
The IRS expects nonprofit organizations to apply to 501(c)(3) status with in 15 months of their formation. Legal formation is usually dated from the date an organization files for nonprofit incorporation in their state. The IRS does allow an automatic extension of 12 months, making the deadline for application a total of 27 months after formation.
If an organization files for tax exempt status after the 27 month period, the IRS will date their exemption from the date of the application (i.e. the date the IRS received the Form 1023 applying for 501(c)(3) status). They will not back date tax exempt status to the date of formation without an explanation of why the organization was delayed in applying.
A nonprofit organization could be liable for income tax on any profits earned in the years before tax exemption was requested. For that reason, nonprofits should apply for tax exempt status within 27 months of formation, preferably earlier.
About the Author
Carol Topp, CPA is a retired homeschool mother, accountant and author of The IRS and Your Homeschool Organization, Money Management in s Homeschool Organization and Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out. Carol runs an accounting practice specializing in nonprofit accounting.
Carol is a member of the Ohio Society of CPAs Speakers Bureau and has presented numerous workshops on money management, taxes, budgeting, nonprofit management and homeschooling to community, church and homeschool organizations. She is also the host of the public television show Starting a Micro Business and a podcast called Dollars and Sense on the Ultimate Homeschool Radio Network.
Her website, HomeschoolCPA.com, was awarded a Top Accounting Blog in 2014, but her greatest compliment was from an audience member who, after sitting for 90 minutes,said , “You kept my attention the entire time.” That’s high praise for a CPA!
Carol and her husband live in Cincinnati, Ohio and have two daughters, both homeschool graduates.