Church adopts homeschool group. What’s next?

The church that my homeschool co-op meets at has agreed to take us under their “ministry umbrella” for tax purposes, etc. Can you point me in the direction of what to do next? The pastor asked me what he should do to make this happen.

Thank you so much for any help you might offer!

Jill

 

Jill,

Oh that’s marvelous! Really. So few churches are willing to include homeschool groups as a ministry. It’s like your group has been adopted and brought into the family of this church.

Put something in writing stating that the church grants your organization permission to use their Employer Identification Number (EIN) and sales tax ID number as one of their ministries. Also put into the agreement that the church will cover your program under their insurance plan.

Ask if all the financial transactions will go through the church’s checking account or if they prefer you set up a separate checking account using their EIN with your homeschool group’s name.

If you pay anyone (employees or ICs) ask if the church will handle the payroll filings (hopefully they will).

There may be a few other details to iron out like background checks (who pays for them, your group or the church) and details on rooms you can use, building security, cleaning up, supplies and equipment your group can use, etc.

Count your blessings!

Carol Topp, CPA

 

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Can my homeschool group collect money now that’s for next year?

 

Many homeschool groups collect deposits in the spring for next fall’s programs. This helps with determining how many families will be returning. But how should these early deposits be recorded in a homeschool group’s bookkeeping? Carol Topp, CPA the HomeschoolCPA offers some ideas.

 

Listen to the podcast

In the podcast Carol mentioned a handout that explains how to record early deposits in accounting software like QuickBooks.

Here it is: Deferred Revenue in QuickBoooks (pdf)

Do you have more questions about managing the money in your homeschool organization?

MONEY MANAGEMENT FOR HOMESCHOOL ORGANIZATIONS: A GUIDE FOR TREASURERS

  • Does your homeschool group manage their money well?
  • Do you have a budget and know where the money is spent?
  • Do you know how to prevent fraud?

This 115 page book will help you to open a checking account, establish a budget, prevent mistakes and fraud, use software to keep the books, prepare a financial statement and hire workers. Sample forms and examples of financial statements in clear English are provided.

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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

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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Is your homeschool program running a daycare?

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True story: A homeschool program was meeting at a church one day a week. They provided nursery care and a preschool for younger siblings of the homeschool students enrolled in the program. The church also had a preschool program operating as a licensed daycare. One day while a state inspector was visiting the church’s preschool, he noticed another group of young children in another hallway.

“What’s that?” he asked.

“Well, those are the children involved in a homeschool program that meets here,” was the reply.

The inspector visited the homeschool program to ask a few questions to determine if the homeschool program was running an unlicensed daycare!

Is your homeschool program running an unlicensed daycare? Should your homeschool preschool be licensed?

It pays to take a little time to check your state laws regarding allowable exemptions from being licensed.

I checked out the laws regarding childcare or daycare licensing in my state of Ohio.

Some examples of programs which do not require licensure (in Ohio):
• Care provided in a child’s own home;
• Programs which operate two weeks or less a year;
• Programs where parents remain on the premises (unless at the parent’s employment site);
• Specialized training in specific subjects, such as art, drama, dance, swimming, etc.
• Programs which operate one day a week for no more than six hours.

So a homeschool program in Ohio might qualify to run a childcare program without being licensed if the parents remain on the premises or the program operates only one day a week for less than 6 hours. The other criteria of specialized training may apply as well, but a lot of homeschool programs do not specialize; they offer a variety of educational classes.

Check out your state laws regarding daycare licensing. Every state is different!

Carol Topp, CPA

 

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What tax forms does a homeschool co-op teacher file?

Hi Carol.
Thank you for all the help you have already given our homeschool community!
There is a homeschool co-op that allows teachers to charge the parents $0-$45 per student.  As a teacher, how would I report any net income on my income tax return? Payments are made directly to me, the teacher.

Best regards,

Lynn (New York)

 

 

Lynn,

You report all your income and expenses on a Schedule C or the shorter form Schedule C-EZ as part of your federal form 1040.

The net amount (Income less all your business expenses) is carried onto page one of your 1040 and added to your other income  from W-2s etc.

If you made more than $400 in net income (your income less any expenses) in the year, you will also have to fill in a Schedule SE and pay Self-employment tax (it’s Social Security and Medicare taxes for self-employed people).

Hope that helps!

Carol Topp, CPA


Homeschool leaders: If you hired and paid a teacher in the past year you may need to file some paperwork with the IRS! The deadline is January 31 to give your workers a 1099-MISC or W-2.

Find out what to do in my book Paying Workers in a Homeschool Organization.

 

 


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Are homeschool co-op fees childcare tax deductions?

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Carol,

A parent asked me for our tax ID number to give to her accountant for listing out tuition as a childcare expense. Is this common practice? Is it the EIN that she’s asking for? Should I give it to the accountant directly? We are 501(c)(3) state-registered corporation.

–Lisa C

 

Lisa,

The parent is asking for your EIN (Employer Identification Number), but the tuition and fees she pays to your homeschool program are (probably) not tax deductible.

IRS Pub 503 Child and Dependent Care expenses make it clear that tuition/education expenses are not child care and are not tax deductible.

Expenses to attend kindergarten or a higher grade are not expenses for care. Do not use these expenses to figure your credit.
However, expenses for before- or after-school care of a child in kindergarten or a higher grade may be expenses for care.
Summer school and tutoring programs are not for care.

If the child was in preschool at your co-op, then, maybe, the portion for the child’s preschool expenses could be childcare. By the way you may need to check your state laws to see if you are required to be licensed as a daycare.

But the child car tax deduction is only allowed for the parent to work. Was this mom going to work while her preschool daughter was at co-op? If yes, then it’s childcare; if no, then it’s not childcare and not eligible for a tax deduction.

I recommend that you not give her your EIN and explain that her tuition and fees to your homeschool organization are not child care expenses and not tax deductible.

In reality, she could find your EIN on the internet if she knew where to look, but it’s more important that you explain that tuition and fees are not tax deductible child care expenses.

Carol Topp, CPA
HomeschoolCPA.com

 

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Top 10 blog posts of 2016

 

Here is a round up of the top 10 most important blog posts from HomeschoolCPA in 2016.

 

Many of them have to do with paying workers in a homeschool organization, probably because I was asked a lot of questions about paying volunteers, giving discounts in stead of paying teachers and the difference between employees and independent contractors.

I also spent a lot of time in 2016 researching and writing Paying Workers in a Homeschool Organization and my blog posts reflect what I was learning.

Compensation to homeschool board members is taxable income

Paying Workers in a Homeschool Organization updated book is ready!

Are homeschool co-op tuition discounts taxable income? Probably!

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

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

Can a homeschool group just get together without having to report to the IRS?

Adding religious purpose to bylaws and Articles

Use Quickbooks online for free

Are discounts to homeschool board members taxable compensation?

How the IRS defines a school

I wonder what 2017 will bring in the world of homeschool organizations!

Sign up for my email list to be kept up to date on the questions homeschool leaders are asking.

P.S. Subscribers to my email list get freebies, discounts and special reports I share only with them.

Carol Topp, CPA
HomeschoolCPA.com

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Co-op collects money to send leader to a homeschool convention

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Hi Carol,
My homeschool group’s Board of Directors recently took up a collection from our members as a way of presenting me with an end-of-year gift of appreciation.  This was a complete surprise to me, especially when they presented me with a check totaling over $700!

The Board collected donations from individual members and then wrote me a check on the group account.  I’m unsure of how to deal with this tax-wise. The gift was given with the intent of paying my expenses for our state’s homeschool convention, including the leadership conference. If I returned the check and used the group’s debit card to pay my hotel expenses, would this alleviate the taxes?

Thank you for taking the time to answer.  I want to make this as easy as possible for group record keeping, and I’m not sure if this is the correct way to go about it.

Blessings,
Barbie T, Florida

Barbie,

I’m glad my website and books have been helpful.  You sound as if you have a great group and I’m sure they appreciate you!

Gift or taxable compensation?

It is sometimes difficult to tell if cash is a gift or a payment for services. The difficulty in determining if payment to a worker is a gift or compensation is that you need to determine the intent of the donor. The IRS has a very difficult time determining intent or expectations. We, on the other hand, can usually determine if a payment is a gift because we know the donor and their expectations.

It sounds as if the co-op was collecting money to defray the expense of sending you to a homeschool convention. It is taxable income to you with expectation that you will “earn” it by going to the convention (and learning a lot!).

If you use the payment on co-op related expenses (like the convention), then you could claim those expenses on your tax return. At the end of the year you  should report the $700 as income on your tax return and and then report expenses like the convention fee, mileage and hotel costs as deductions. You may break even or show a small profit.

A better way

In retrospect, it would have been better if the board had collected the monies and then gave you a nice note saying that you won an all expenses paid trip to the convention and used the co-op’s debit card to pay the expenses. These expenses would not be considered taxable income to you since the money never came to you. And the convention is to develop your leadership skills, not for your personal pleasure (although you may enjoy it!).

Carol Topp, CPA

payingworkerscoveroutlined

Paying Workers in a Homeschool Organization-2nd edition

$9.95 paperback
130 pages
Copyright 2017
ISBN 978-0-9909579-3-5

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