Income and expenses are a “wash.” Do I have to record them?

I’m treasurer for a nonprofit homeschool group. Every year some of the teachers charge a lab fee and it all gets spent on lab equipment. Do we have to claim that as income or is it just a wash because it’s used for materials or experiments?

Homeschool Treasurer

 

 

Dear Homeschool Treasurer,

You should claim/record the lab fees collected in full as income to your group.

Then also record the lab or equipment expenses to clearly reflect both the income and the expense.

If you don’t record the income, because it is a “wash” (meaning the same as the expenses, so no effect on your profit or surplus), then you are guilty of both under-reporting income and under-reporting expenses.

Your board will not have an accurate picture of all the income and all the expenses.

And you’ll be lying to the IRS! This is obviously more serious if your homeschool group is a for-profit business.

I warn against mixing income and expenses in your bookkeeping in my book Money Management in a Homeschool Organization.

Please take a few minutes and record all your income and all your expenses.

Carol Topp, CPA

HomeschoolCPA.com

Helping Homeschool Leaders

Top tax mistakes homeschool business owners make

I’ve talked to a lot of homeschool (for-profit) program directors over the past few years. These people have a huge heart for homeschooling, but many do not understand that when they start their programs, they began operating a business. They don’t see themselves as business owners (but they are!), and so they neglect getting educated about running a business and make a lot of mistakes.

Here are the top tax mistakes I see homeschool for-profit directors make:

  1. Giving themselves a 1099-MISC.
  2. Not understand that they are business owners.
  3. Paying tutors as Independent Contractors but treat them as employees.
  4. Not understanding their tax obligations.
  5. Not being prepared for self-employment tax.
  6. Not being aware of potential penalties for worker misclassification.
  7. Not keeping good records.
  8. Not seeking professional advice before signing an agreement or launching a program.
  9. Not getting tax advice.
  10. Asking Independent Contractors or employees to volunteer their time. That is Illegal in most states.
  11. Not realizing fundraisers are taxable income.
  12. Thinking they can form a nonprofit by filing a piece of paper but not forming a board or drafting bylaws.

I explain a lot of these tax mistakes in my webinar on Tax Preparation for Homeschool Business Owners. It should be a lot of help to for-profit directors, tutors, co-op teachers and other homeschool business owners! For details visit HomeschoolCPA.com/HSBIZTAXES

 

Additionally my book on  Paying Workers in a Homeschool Organization  explains in detail why tutors should be paid as employees and the risk a homeschool business owner is taking if she pays her teachers or tutors as Independent Contractors.

 

I’m not trying to scare anyone!  Sorry if I did, but maybe it will compel you to change your actions.

I’m not trying to talk you out of being a homeschool business owner, director of a for-profit program, or tutor if you love it.

But I am trying to help you stay out of trouble with the IRS and your state government.

The last thing I want is an audit of homeschool programs or businesses by the IRS or state governments! No one wants the reputation of homeschooling tainted in the eyes of our government. We don’t need that!

 

Carol Topp, CPA

HomeschoolCPA.com

Helping homeschool leaders

New tax deduction for homeschool teachers and tutors in 2018!

Congratulations homeschool business owners which may include homeschool co-op teachers, directors and tutors! There is a new tax deduction that you are (probably) entitled to take on your 2018 tax return!

It’s called the Qualified Business Income (QBI) Deduction.

The QBI tax deduction is equal to 20% of your profit from a “qualified business.”

Tutoring and teaching are both a “qualified businesses” if operated as anything except a C corporation.

If your taxable income is less than $157,500 for a single person or $315,000 for married filing joint, you can claim the 20% QBI tax deduction (even if you are one of the not qualified businesses I listed). If your income is more than those thresholds, your deduction will be phased out.

There are some additional restrictions and complications, especially if your business is an S Corporation, pays wages to employees, or if you have several businesses. So consult your tax professional if those situations apply to you.

 The Qualified Business Income Deduction is found on Line 9 of the 2018 Form 1040. so look for it!

Your tax prep software may not calculate the deduction automatically; you may have to answer some questions to trigger the deduction.

This deduction is for business owners, but not for employees.

Need more help preparing your tax return for 2018 this year?

There is a lot to learn about running a business. I don’t mean to discourage you or anyone else away from operating a homeschool business. You provide a valuable service to homeschool families! I am offering this webinar to help you understand the tax implications:

Carol, thank you again for the webinar. It was one of the BEST webinars I’ve EVER attended. If you do hold another one, I would pay for it hands down.  Totally worth the $10! -Denise, webinar attendee

“I actually don’t care for webinars at all – it is not my learning style at all and I struggle to focus, but this one was extremely value and had my attention”. -Mary, webinar attendee

The webinar was recorded and you can access the recording and slide handout at HomeschoolCPA.com/HSBIZTAXES for a small fee of $10.

Carol Topp, CPA
HomeschoolCPA.com
Helping homeschool leaders

How does the new tax law changes affect homeschool teachers and tutors?

There were a lot of changes to the US taxes in 2018 and the IRS re-designed the Form 1040, so tax preparation in 2019 will be very confusing.

Here are some highlights of the tax law changes that affect homeschool business owners and that includes (nonemployee) teachers at a homeschool co-op, owners of for-profit homeschool programs, and tutors.

Yes, teacher and tutors are business owners! If you accept payment and offer a service (like a class), you are in business and are a business owner. If you teach or tutor as an Independent Contractor, you have a tutoring business!

 

Highlights of Tax Changes in 2018

  •  No more exemptions for each family member. This may hurt large families.
  •  Standard deduction increased to $12,000 S/$24,000 MFJ
  •  Child Tax credit increased to $2,000/child
  •  New Qualified Business Income deduction
  •  New tax forms: 1040 “postcard”
  •  Lower tax rates (12% for most of us)

 

The new Qualified Business Income deduction will help homeschool business owners. You’re going to love it!

The deduction is equal to 20% of your profit from a “qualified” business (sole prop, partnerships, S corp)

If your Taxable Income less than $157,000 Single or $315,000 Married Filing Joint, your business is “qualified.”

Look for this Qualified Business Income deduction on new re-designed Form 1040 Line 9

 


There is a lot to learn about running a business. I don’t mean to discourage you or anyone else away from operating a homeschool business. You provide a valuable service to homeschool families! I am offering this webinar to help you understand the tax implications:

I recorded a webinar on Tax Preparation for Homeschool Business Owners. It should be a lot of help to tutors, non-employee co-op teachers and other homeschool business owners! You can watch the recording at HomeschoolCPA.com/HSBIZTAXES for a small fee of $10.

Carol, thank you again for the webinar. It was one of the BEST webinars I’ve EVER attended. If you do hold another one, I would pay for it hands down.  Totally worth the $10! -Denise, webinar attendee

“I actually don’t care for webinars at all – it is not my learning style at all and I struggle to focus, but this one was extremely value and had my attention”. -Mary, webinar attendee


I hope that helps,

Carol Topp, CPA

HomeschoolCPA.com

Helping homeschool leaders

Can a homeschool program director deduct her child’s tuition on her tax return?

Carol,

I’m a director for a small classical homeschool program. I am required to have all my children enrolled in the program. I see this as a requirement for being a director and therefore a business expense. Can I deduct my children’s’ tuition and fees as a business expense on my tax return?

-T

 

Dear T,

No. The tuition and fees are not a business expense; they are a personal expense. They are not tax deductible as a business expense.

Just because the program you use requires you to have all your children enrolled in the program, does not make those expenses “ordinary and necessary” business expenses allowed by the IRS.

To be a bit ridiculous consider this:

I have to eat in order to stay alive and operate my business, but that doesn’t make my meals eaten at home are a business expense!

I imagine that the homeschool program wants to you to wear clothing while teaching, but your typical street clothes are not  a tax deductible business expense. They are a personal expense.

 

From the IRS:

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.

Generally, you cannot deduct personal, living, or family expenses. (emphasis added)

Source: https://www.irs.gov/businesses/small-businesses-self-employed/deducting-business-expenses

Your children’s tuition is a “family expense,” not a business expense.

Do not deduct it on your Schedule C Profit or Loss from Business tax form.


It is not my intention to scare you or anyone else away from operating a homeschool business. You provide a valuable service to homeschool families, but you do need to understand the legal and tax implications, so I am offering this webinar to help:

I recorded a webinar on Tax Preparation for Homeschool Business Owners. It should be a lot of help to tutors, co-op teachers and other homeschool business owners! For details visit HomeschoolCPA.com/HSBIZTAXES


I hope that helps,

Carol Topp, CPA
HomeschoolCPA.com
Helping homeschool leaders

Homeschool business owner under reporting her income

I’m a leader of a small, for-profit classical homeschool program. I have only been recording the amount that I retain after I pay my tutors on my tax return. After reading your website and FB comments, I’m confused. Why do I have to claim all of the money even though I don’t keep it?

-S

 

Dear S,

You, as a business owner, must report all your income om your tax return. Additionally, you can deduct business related expenses, like paying your tutors, insurance, rent, etc.

You asked, “Why do I have to claim all of the money even though I don’t keep it?
Good question!

Short answer: It’s the law. The IRS requires business owners to report ALL their income. Then the business owner shows the IRS all their business-related expenses. The difference is profit and that’s what business owners pay taxes on (and get to keep).

Longer answer: By showing your total income from your business and all your business-related expenses, you prove to the IRS that your business had little or no profit. The IRS won’t take your word for it that your didn’t “keep it.” They want proof of how much profit you had and you give the proof by filling out the numbers on the tax form (Form 1040 Schedule C for businesses).

On your tax form (Schedule C) you should have answered this question: Did you make payments that require you to file Form 1099? with a YES, because you paid your tutors as 1099 Independent Contractors and gave them each a 1099-MISC (I assume).

Then further down on the Schedule C you can deduct what you paid those tutors on Line 11 Contract Labor (or Line 26 Wages if they are employees). Then you can also show any other expenses like insurance, office supplies, etc.


It is not my intention to scare you or anyone else away from operating a homeschool business. You provide an essential service to homeschool families, so don’t stop, but you do need to understand the legal and tax implications, so I am offering this webinar to help:

On Monday January 21, 2019 at 8 pm I will be giving a live webinar on Tax Preparation for Homeschool Business Owners.  The webinar is free for the live version. For details visit HomeschoolCPA.com/HSBIZTAXES


If you did not prepare your tax return this correct way, you may need to amend your prior years’ tax returns, especially if you failed to report all of your income. You can amend up to 3 prior years. The IRS can fine taxpayers for under-reporting income. They take that very seriously!

But if you correct prior year tax returns now, the IRS usually waives any fines and penalties.
You may not owe any additional tax, so don’t panic!. I cannot tell if you will owe more tax (or get money back!) until I would see your tax return and recalculate your Schedule C.

Did you prepare the tax return yourself or use a professional tax preparer? If you used a professional tax preparer, go back to him/her with all your records for the past 3 years and see what they recommend that you do.

 

I hope that helps!

Carol Topp, CPA
HomeschoolCPA.com

Webinar: Tax Preparation for Homeschool Business Owners


 

Taxes! Oh my! 2018 tax returns will be a doozy with massive tax law changes and the redesigned Form 1040.

But tax preparation for homeschool business owners is even more complex than regular taxpayers.

Fortunately, HomeschoolCPA is here to help. I recorded a webinar.

 Taxes for Homeschool Business Owners

$10.00 includes unlimited viewing and a handout of slides

Here’s what the webinar covers:

  • Highlights of tax changes for 2018
  • IRS tax forms for a sole proprietorship: Schedule C and SE
  • Self-employment tax
  • How to pay yourself
  • Tax deductions common to homeschool business owners
  • New tax deduction for 2018! Look out for this one. It’s terrific!
  • The new redesigned IRS Form 1040
  • Two sample tax returns. Yes, I walk you through two sample tax returns, so you can see how everything looks. 🙂
  • Common mistakes to avoid

Carol, thank you again for the webinar. It was one of the BEST webinars I’ve EVER attended. If you do hold another one, I would pay for it hands down.  Totally worth the $10! -Denise, webinar attendee

Carol, thank you for doing this for us! I am not a numbers person at all, and still found this webinar very interesting and helpful.”-Anne, webinar attendee

“I actually don’t care for webinars at all – it is not my learning style at all and I struggle to focus, but this one was extremely value and had my attention”. -Mary, webinar attendee


This webinar is for:

  • Paid teachers at a homeschool co-op
  • Tutors getting paid as Independent Contractors
  • Directors/owners of homeschool programs such as CC directors running a community
  • Music teachers, tutors, coaches, etc. running their own businesses
  • Business owners selling services to the homeschool marketplace

The webinar recording costs only $10. You will gain a lot more than $10 worth of information, I promise.

For $10 so you get:

  • Access to the webinar video to re-watch as often as needed (just save the link!)
  • Download of the webinar slides
  • Notification of upcoming webinars for homeschool business owners and nonprofit leaders

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

California homeschool leaders: A webinar just for you!

For California homeschool leaders: I have something special for you!
A free webinar
on

Money Tips and Traps for Homeschool Organizations

Monday December 3, 2018 at 6:30 pm California time

and
Carol Topp, CPA, the HomeschoolCPA

 

The webinar is for all homeschool leaders of co-ops, support groups, CC Communities, sports, music, clubs, etc! Whether your group is large or small, new or mature, you can learn something new or improve on what you are currently doing!
The webinar will cover:
  • Tips for managing the money in your homeschool group
  • Board duties (what leaders should be doing!) concerning money
  • What financial reports California requires
  • What reports you should be filing with the IRS
  • Money traps to avoid
  • Taxes and tax exempt status
  • Paying workers
  • Avoiding errors and embezzlement

There will also be time for your questions and answers!

The webinar will be held  Monday December 3, 2018 at 6:30 pm California time
You can join my phone, PC, Mac, iphone, iPad, etc. from wherever you are!

 

The webinar is free, but you must register to be emailed the link.

 

In addition the webinar will be recorded, so be sure to register so you get the recording link emailed to you!
If you can’t attend the live webinar, still register, so you will be sent the link to view the webinar later.

 

I hope you can join me on Monday December 3, 2018  at 6:30 pm PT
Thanks to CHEA for hosing and helping put on his webinar for homeschool leaders!

 

Register today even if you can’t join us live so you will get the link to the recording.

 

Carol Topp, CPA
HomeschoolCPA.com

How should a homeschool co-op set up their Quickbooks account?

Do you have something on your website or a resource on how a co-op should set up their QuickBooks accounts?

Michelle

 

Michelle,

I have a few posts about how to set up QuickBooks for a homeschool co-op:

Quickbooks Tips for Homeschool Groups on Sales
What financial reports do we need to generate monthly?

If you receive money in one year, but it’s really for next year (like early registration) then this is helpful:
Deferred Revenues in QuickBooks (opens a pdf file)

 

I actually don’t spend a lot of time talking about QuickBooks on this blog because there are so many good resources our there like this one (check out her QuickBooks tutorials):

5MinuteBookkeeping

A nonprofit called TechSoup has some great videos for using QuickBooks in a nonprofit:

https://www.youtube.com/playlist?list=PLRCtupIatuLkSlhtlXDyo7P7woeHORwgn

Finally, my book Money Management in a Homeschool Organization  has some tips for using QuickBooks like setting up a Chart of Accounts and a who are your “Customers” and what are your “Sales.”
I hope that helps,
Carol Topp, CPA

Are you Confused by your Homeschool Group’s Financial Reports? Webinar for you!

Are you confused by the financial reports from your homeschool group?

You’re not alone!

In this short podcast episode (8 minutes)  Carol Topp, the HomeschoolCPA, will tell you about a webinar she is hosting on Monday October 29, 2018 at 8 pm ET.

Financial Reports for Homeschool Groups: The Good, the Bad and the Ugly

In the podcast Carol mentioned how to register for the webinar.

There is no charge for the webinar but a payment is gladly accepted to offset the cost of hosting the webinar.
https://Paypal.Me/CarolTopp/5 to pay $5.00
https://Paypal.Me/CarolTopp/10 to pay $10.00

The webinar will be recorded, so please Register so that you will be emailed the link to the video.

Like handouts? Here’s a helpful handout: Financial Reports Webinar Handout (pdf)