Can you fund raise or accept donations as a homeschooling family?

Dollarsinhand

If I am going to homeschool my own children and am not part of an organization, is there a way to fund raise or receive donations for homeschooling and keep it separate from our home income? Do we need to still claim it as part of a household income if we are using it for school purposes? Are there any tax deductions or credits for homeschooling?

Jena F in AZ

 

Jena,

I’ve been asked before about fundraising to a family to help with homeschool expenses. Here’s a blog post on the subject:
http://homeschoolcpa.com/can-my-individual-homeschool-have-a-fundraiser/

You may fund raise, but the the income is considered earned income from a business and the profit is fully taxable.

You can accept gifts from generous people, but they will not be tax deductible donations to the donor because your family is not a qualified charitable organization.

There are no federal tax deductions for homeschool expenses, but some states, such as Indiana allow educational deductions to all parents, public, private school and homeschool.
Here’s another blog post on that subject: http://homeschoolcpa.com/?s=tax+deductions

AZ does have some tax credits for education, but they are for donations to a school, not for individual expenses. Read more here:
http://www.azdor.gov/TaxCredits/SchoolTaxCreditsforIndividuals.aspx

I hope that helps,
Carol Topp, CPA

Raising money for your own kid is not charity!

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Fellow CPA Peter Reilly, a journalist at Forbes.com, emailed me about a recent court case involving individual fundraising accounts (IFAs).

IFAs are when you share or distribute your fundraising proceeds among the families who raised the money.

IFAs are illegal and a gymnastics booster club recently lost a Tax Court case and their tax exempt status for using IFAs.

Read Peter’s blog post on the court case. It’s a very good summary (I read the entire court case!)

Parent Booster Clubs – Raising Money For Your Own Kid Is Not Charity

Here’s the bottom line:

Do NOT set up individual fundraising accounts.

If you have them now, STOP!

If you conduct fundraising, do not record how much each family brought in.

Do not have a system where tuition or dues are reduced by the amount of fundraising a family conducts.

 

All fundraising proceeds should go into your general fund to be used for the common expenses of the group.

We’re all in this together folks!
Carol Topp, CPA

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Fundraising only with in your membership has advantages

GirlThrowsMoney

Would a vendor fair or yearbook ads where we ask businesses for sponsoring money be considered raising money from the public?

Would fundraising with our members only be considered public?

Thank you,

Tonya W in FL

 

Tonya,

Note: Tonya is asking these questions because her state, Florida, asks several questions about fundraising or soliciting money from the public. Most states regulate nonprofit organizations that fund raise from the public. Many states allow groups to fund raise within their membership without any reporting to the state.

Fundraising from only within your membership is not public fund raising.

A vendor fair is not really “raising money.” It is a program related to your purpose (education). So all income from it would be considered “program income” not fund raising income to the IRS and FL.

The ads in the yearbook are not related to your purpose (education), so it is considered Unrelated Income to the IRS. Unrelated Income is taxable, but the IRS has several exceptions to being taxed.
Read about it here:  http://homeschoolcpa.com/what-is-unrelated-business-income-tax/

The states care about you asking for donations from the public, not really about income from running your program, holding a vendor fair, or selling yearbook ads.

Hope that helps!

Carol Topp, CPA

 

Will being an Amazon affiliate cause tax problems for a homeschool group?

money_through_laptop_pc_400_clr_2978

 

I have a question about affiliate relationships with companies like Amazon. We want to receive the benefits offered by Amazon (and others) by placing a link on our website for members and non members to use when ordering products.

I read through one article on your blog regarding Unrelated Business Income Tax (UBIT). One point in your article refers to exemptions for the tax and I believe we will qualify for at least two:

  • A $1,000 threshold allows that the first $1,000 in profit from an unrelated business will not be taxed.
  • If the fundraiser (or unrelated business) is run by volunteer efforts (i.e., no paid staff) then the proceeds are not taxed.

Do you have anything to add to that article or any others I haven’t seen?  Specifically, should we avoid these types of programs?

I appreciate your insight as well as your being a resource to the homeschool community.

Sincerely,

Jeanne R

 

Jeanne,

Thank you for contacting me and your kind words.

I think you understand Unrelated Business Income Tax (UBIT) and the exemptions quite well.

UBIT is a tax that tax exempt organizations must pay when they earn a profit on activities that are unrelated to their tax exempt purpose. The classic example is that a nonprofit hospital must pay the IRS taxes on profit from their gift store, because running a gift store is not related to the hospitals tax exempt purpose (treating illness).

Most charities qualify for exemption from UBIT and you found two common exemptions.

I think the affiliate program with Amazon is a fine idea.

Have it run by volunteers and you’ll avoid any UBIT.

Carol Topp, CPA

How can a homeschool mom redeem BoxTops?

I was wondering how I could redeem my boxtops,but I’m not in a homeschooling group, I’m just a homeschooler. How can I redeem them?

 

According to the BoxTops4Education Official Rules you must be a school or a recognized 501(c)(3) tax exempt homeschool association in order for Box Tops to redeem your box tops.

General Mills does not give check to individual families.

I recommend you give the box tops you have to a school or 501(c)(3) homeschool group.

Carol Topp, CPA

Can a homeschool athletic booster club be a 501c3?

FreeDigitalPhotos.net Credit: Salvatore Vuono

FreeDigitalPhotos.net Credit: Salvatore Vuono

Mrs Topp,

For several years my wife has operated a group here in Lubbock Texas.  The purpose of the group is to raise funds for our homeschool athletic teams to pay for various aspects of their sporting endeavors.

 The group receives a percentage of sales from concession stands operated at Texas Tech University and are paid by Ovations, the current concessions operator for Texas Tech.   Ovations uses non-profit groups to operate all concession stands.

 We have never sought non-profit status and now Ovations is insisting that we do so or they will no longer use us.

We has always paid each individual working in the stand based on how much time they worked, and given out 1099MISC to those making over the minimum $600.  Those working come from homeschool athletic teams though we do not dictate how the money each receives is spent.

 In reading the IRS website I can see that sports organizations are eligible for non-profit status, but is the way we pay those working acceptable?

 Paul H

Lubbock, Texas

 

Paul,

Your organization sounds like a parent booster club in that you raise funds to support athletic teams. Yes, booster clubs and athletic teams can be 501c3 tax exempt organizations.

The issue of paying parents working a concession stand has come up with the IRS in the past.
Here is a blog post I have written on the topic.
http://homeschoolcpa.com/the-irss-word-on-fundraising-dos-and-donts/
I think the IRS would approve of the way you are paying the parents. Giving them a 1099MISC is the correct way to report their earnings.

You might also find this website ParentBooster.org helpful.

ParentBooster.org offers tax exempt status to athletic booster clubs that support the activities of a school under their group tax exempt status. I asked the founder, Sandy Englund, if homeschool booster clubs would be eligible for 501c3 tax exempt status under ParentBooster.org, but she said no. Maybe you should ask and see if you get a different answer. It would be a very easy way to obtain your 501c3 tax exempt status.

 

 

 

 

The IRS’s Word on Fundraising Do’s and Don’ts

Carol,

My homeschool group does several fund raisers where we divide the proceeds to each family to reduce the parents’ tuition. We have a shoppers reward program and I track how much of a tuition credit each parent earns by using their shoppers reward card.  We also let students or parents work off some tuition by volunteering to work a shift at our city’s major league baseball stadium concessions.  The team makes a donation to our homeschool group (a 501c3 organization).  I’m having a hard time finding information on the IRS website about these types of fund raisers.

Susan in Ohio (paraphrase from a spoken conversation)

Susan,

I’m sorry you found it so difficult to find information about fundraisers like your group is running. Sometimes you have to know the correct language to use in a search. Search on the words “Booster Club” to see what the IRS has said.

Here’s a wonderful link from a lawyer, Harvey Mechanic, that volunteers to answer nonprofit questions. He gets a lot of questions about booster clubs and fund raising like this one in particular: AllExperts NonProfit Law:Booster Clubs

To see all the questions and answers go here: AllExperts NonProfit Law

irs1Mr Mechanic frequently refers readers to an IRS document titled Athletic Booster Clubs: Are They Exempt? He summarizes and edits the IRS document here: Summary of IRS Article on Booster Clubs

Here’s the full text at 14 pages: http://www.irs.gov/pub/irs-tege/eotopica93.pdf

I’ve read this document several times. It is a document that the IRS uses to train their employees. While it addresses athletic booster clubs, the principles apply to school booster clubs also, including homeschool groups that do fund raising.

Finally, Mr Mechanic answers a question about fund raising by working concessions at MLB games here: Working Concessions at MLB Games

I hope that helps. Sorry there’s not one paragraph at the IRS website to point you to! This is a collection of laws, rulings and cases over several years.

Carol Topp, CPA

Do you know about HomeschoolCPA’s free webinars?

Click to go to webinars

 

HomeschoolCPA has three webinars that you can listen to for free.

These webinars have been downloaded over 250 times!

They are each about an hour long.

All the workshops can be found at : HomeschoolCPA’s Workshops at Talkshoe

 

Paying Workers in a Homeschool Organization

 

Fundraisers for Homeschool Groups

This handout references some links and important information about fund raising pitfalls to avoid. Fundraising Webinar Handout

Updates:

  • BoxTops now requires 501(c)(3) status for homeschool organizations to participate in their program.
  • The IRS has raised the dollar threshold for filing the 990N from $25,000 to $50,000 annual gross income.

The IRS and Your Homeschool Organization

This handout will be very helpful as you listen to the webinar: IRS and Your Homeschool Org Slide Handout

 

I hope you learn a lot!

Carol Topp, CPA

Box Tops now requires 501c3 status for homeschool groups

Bad news.

Box Tops for Education now requires homeschool groups to have 501c3 tax exempt status with the IRS in order to participate.

Here’s what their website states:

“Eligibility is also available to IRS recognized 501(c)(3) home school associations in the United States, organized and operated primarily for educational purposes and containing a class of 15 or more students from Kindergarten to 8th grade.”

Source: http://www.boxtops4education.com/common/Rules.aspx

This means that support groups that are considered 501c7 social clubs by the IRS are not eligible to participate.

It may also mean that tiny co-ops with gross revenues under $5,000 who are considered tax exempt by the IRS, but have no written determination letter (i.e. proof) may not be eligible.

There is also no clear word if current groups will be “grandfathered in” and allowed to continue to participate.

 

What can a homeschool group do?

1. Discontinue the Box Tops program. (Bummer).

2. Complain to Box Tops for Education. I’m happy to help you compose a letter with some information regarding the tax status of most co-ops if you think it would help.

3. Apply for 501c3 tax exempt status. Start by reading my articles here: http://homeschoolcpa.com/leader-tools/articles/

4. Work with your state homeschool organization if they have 501c3 tax exempt status. In VA, a local group mails their Box Tops to the state organization (HEAV). The state homeschool organization then takes about half of the money from Box Tops and sends the local group the other half. It might work for you, although you give up a portion of the funds.

 

Carol Topp, CPA

Soliciting funds, donations and fund raising

Ms. Carol,

I was wondering if you would be able to answer this question: Nationally, regardless of the state, do you first have to become a 501c3 tax exempt organization in order to solicit funds on behalf of a homeschool group?

I am in the process of weighing the pros and cons of becoming a 501c3 and just gathering as much information as I can to make the most accurate decision.  Has it stands right now, I am a sole proprietor, starting a small homeschool group, looking to fund raise, but understanding that I might have to become a 501c3 to solicit funds for the group.

Do you have any thoughts on this matter?  Thank you again for you time and consideration, I appreciate your assistance!

Much Thanks,

Sunny

 

Sunny,

To answer your question, I have to differentiate between fund raising and soliciting donations. Fund raising is not regulated nationally; it is regulated by each state’s Attorney General’s office. Typically the AG wants a charity that uses a professional fundraiser to “register” with the state AG office. Some states require annual filings on fund raising activities. Usually the reporting is if an organization raises over certain dollar amounts. I’ve seen $25,000 and $100,000 thresholds.

This website is helpful in determining what your state requires. http://www.hurwitassociates.com/areas.php#tax-exempt. Find your state on the left sidebar under State-by-State Filings.

501c3 tax exempt status allow donations to be tax deductible. “Fund raising” is not the same as accepting tax deductible donations. When you say “solicit funds” it could mean either holding a fund raiser or asking for a donation. If by “solicit funds” you mean asking for a donation, then your organization must have 501c3 tax exempt status in order to provide a tax deduction to the donor.

Naturally, a donor can make a non-deductible donation to a group that is not 501c3, but few donors do that. They prefer the organization become 501c3 tax exempt, so that their donations are a tax deduction.

Long answer to your question. I hope that helps.
Carol Topp, CPA