Holding a fundraiser to pay for homeschool curriculum

Photo credit TheMagicOnions.com

 

I homeschool my 3 children and 3 children of another family. As a project, we learned how to create a school website and as a idea to raise money for curriculum, supplies and hopefully a field trip or two. We’re in NC and also considered a private school.

We thought of an idea to sell Fairy Gardens that we personally make and accept donations on our website. Am I breaking any laws by not being registered as a business or non profit? 100% of profits will be spent on the school, but it goes to my own PayPal account and I state on the website that receipts for the donation being spent on the school and states that the donations are not tax deductible.

It dawned on me that it might not be allowed to do this without some kind of permit. I’m not sure though because I would be allowed to make fairy gardens and sell at a yard sale, so is it different if I sold them online?

Also, can I be a non-profit since I homeschool the children of two families and not just my own? I would greatly appreciate your feedback on this and thank you so much for all of the knowledgeable information you’ve shared on your site!

Best wishes,

April in North Carolina

 

 

April,
You and the other family are not a nonprofit organization, even if North Carolina classifies your homeschool as a private school. Private school  only means you are not funded with public (i.e. government) funds. It does not make you or your business a nonprofit organization. (BTW, some private schools are for-profit businesses.)

In order to be a tax exempt nonprofit, the IRS says you must be operated and organized as a nonprofit.

A tax exempt nonprofit organization “must not be organized or operated for the benefit of private interests” (Source: https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-section-501c3-organizations).

So benefiting only you and the other family is “private interests” and not serving a public good, therefore you cannot be a nonprofit organization with only two families getting all the benefits.

Your fairy garden business is NOT a nonprofit. It is a business, probably a micro business. Stop calling your sales “donations.” They are simply sales of products (fairy gardens in your case) by a business.

You probably need to register in North Carolina as a business and probably get a vendors license to collect and pay sales tax.
Better start googling “Start a small business in North Carolina.”

 

My books Micro Business for Teens could help your children start this as their business (not yours) and learn a lot too!

 

 

 

 

 

 

Additionally, your comment about selling your products at a yard sale is not quite correct. You can sell fairy gardens at a yard sale, but then you’re running a business and the profit is taxable. In yard sales, you are generally selling household items you bought over many years and used personally and selling them for less than you paid for them. But that’s not true for your fairy gardens. You did not use them personally and you are selling them at a profit, so it’s a business and you should register it and apply for a vendor’s license.

 

Carol Topp, CPA

Do CC Directors pay for their own children’s tuition?

Karen, a homeschool leader involved in Classical Conversions asked,

Do Classical Conversations (CC) Directors have to write a check (to themselves) for full tuition for each of their kids?

No. A CC Director does not have to pay her own business tuition for her own children. 

Here’s why:

CC Corporate wants a Director to pay their licensing fee based on student enrollment/tuition collected, so a CC Director should track the total tuition collected INCLUDING HER OWN CHILDREN. That way she is paying CC Corporate the correct amount.

But for tax purposes, a CC Director DOES NOT write her business a check for her own children’s tuition and does not include her child’s tuition in the income reported on her tax return (I’m assuming the Director is operating her business as a sole proprietorship and is not an employee of her own business).

The reason is that a person should not be taxed when they avoid paying for services by providing the services to themselves. It’s called imputed income. There was a court case in 1928 that ruled that the imputed income from produce grown and eaten by a farm owner is not taxable as income to the farmer.[9]

Conclusion: A Director must keep track of the tuition she would owe for her children so that she pays CC Corporate the correct licensing fees, but she does not need to write a tuition check to her business and she should not report her child’s tuition as taxable income on her business tax return.

Carol Topp, CPA

HomeschoolCPA.com

My book Taxes for Licensed Classical Conversations Directors is available through Classical Conversations. Find it  in the Directors Licensing Guide  page 54, Appendix M and click on “this document.”

Does a Nonprofit Need to File Any Tax Returns Before They Apply for Tax Exempt Status?

 

Does a nonprofit need to file a tax return before they receive tax exempt status?  Yes, the IRS requires organizations to file information returns before they apply for tax exempt status.

Here’s what the IRS website states:

Tax Law Compliance Before Exempt Status Is Recognized

An organization that claims tax-exempt status under section 501(a), but has not yet received an IRS letter recognizing exempt status, is generally required to file an annual exempt organization return.

So the answer is YES, you need to file either tax returns (and pay tax!) or information returns before you are granted tax exempt status.

In this short podcast episode (14 minutes)  Carol Topp, the HomeschoolCPA, will explain this very confusing requirement.

 

Featured Product

Have more questions about your homeschool organization’s tax exempt status? My book, The IRS and Your Homeschool Organization would be a big help.

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

Carol Topp, CPA

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A homeschool group is using free Paypal. Is that legit?

Hi Carol!

Our small homeschool group set up our business account with PayPal to collect payments from our families.

A friend/homeschool leader said we should accept money through the “friends and family” option on PayPal and avoid the PayPal fees. I didn’t even realize this was an option for a business account, but it is. I’m not sure if that’s legit. 

What scenario would I ever accept money via friends and family?

Thanks so much for your service to us homeschooling mamas!

-V, a homeschool group leader

 

Dear V,

Since you are accepting payment for rendering a service, you cannot avoid the PayPal fee.

To use the “friends and family” option would be deceitful.That option is for true transfers of money among friends, but not if your group is getting paid for rendering a service.

No one likes paying fees, but PayPal is doing your organization a service (processing credit card or debit card payments) and you should expect to pay for that service. You may have to increase your fees to the families a bit to cover the extra expense, but paying the Paypal fees is the correct, proper and legal way to run your homeschool group.

Carol Topp, CPA

HomechoolCPA.com

 

Have more questions about managing the money in your homeschool group? My book Money Management in a Homeschool Organization may be just what you need!

Money Management for Homeschool Organizations

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.


Paperback $9.95

Ebook(pdf) $3.99

Kindle $3.99

 

 

What is Unrelated Business Income or UBIT?

 

A nonprofit group may raise a lot of money from fund raising. These fundraisers could be so successful the leaders may wonder if the homeschool group owes anything to the government in taxes. For the most part, fund raising is not considered part of your nonprofit group’s mission; it is just a means to the end. After all, your group’s mission is to encourage homeschooling, not to sell ads, pizza or other products.

The Internal Revenue Service calls the money a homeschool group or any nonprofit raises from a fundraiser “Unrelated Business Income,” meaning it is money collected in a trade or business that is not related to your primary mission (or what the IRS calls your “exempt purpose”).

In this short podcast episode (13 minutes)  Carol Topp, the HomeschoolCPA, will explain the 4 exceptions to UBIT:

 

Do you have more questions about conducting fundraisers? My book Money Management in a Homeschool Organization can help.

  • 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.

Money Management in a Homeschool Organization

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Homeschool leaders summer reading: Money Management in a Homeschool Organization

 
This summer I’m encouraging homeschool leaders to take time to become a better leader by reading through my books. This week I’m featuring my book,

 

When I originally published this book in 2008, it was a short 40 page ebook and had a horrible cover.  I was still learning and self-publishing was brand new!
MoneyMgmtCover
An update was badly needed and I tackled that project in 2014. The book ballooned to 131 pages and I subtitled it “A Guide for Treasurers.” I feel like I poured my CPA brain into this book.

 

Cover Money Mgmt HS Org
 Topics covered in this book include:
Chapter 1: Your Treasurer is a Gem!
Chapter 2: Checking Accounts Done Right
Chapter 3: Super Simple Bookkeeping Basics
Chapter 4: Show Us Your Books! Regular Reporting on Financial Status
Chapter 5: Establish a Budget: You’ll Thank Me Later
Chapter 6: Get What’s Coming to You: Collecting Fees
Chapter 7: Do I Have to Report This? Reimbursement Policies and Avoiding Taxes
Chapter 8: Using Software to Stay Sane
Chapter 9: Fraud: It Couldn’t Happen to Us
Chapter 10: Need More Money? Easy Fundraisers for Homeschool Organizations
Chapter 11: Risky Business: Insurance for Homeschool Groups
Chapter 12: Paying Workers: Hiring Employees and Independent Contractors
Chapter 13: Homeschool For Profit: Running a Homeschool Group as a Business

 

 

 

Carol Topp, CPA

 

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My homeschool is a private school. Can I use 529 funds?

I explained in “Can homeschoolers use 529 plans? Maybe!” that you can use 529 savings account funds for tuition paid to a public, private, or religious school.

Some homeschool students take classes from private schools (locally or online). The tuition payments to these schools can use 529 funds without  penalty or taxes.

So that begs the question,

“In my state, my homeschool is considered a private school. So can I use 529 funds for my private school/homeschool expenses?”

No. Sorry!

Here’s why:

The expenses must be to pay tuition. You don’t pay yourself tuition! That would be silly and not tax-smart.

Your other homeschool expenses such as books, curriculum, school supplies, field trips and are not paymnets for tuition and so you cannot use 529 funds without paying a hefty penalty!

Tuition payments to organizations that are not schools like your local co-op, Classical Conversations, etc.  cannot use 529 funds either (without incurring taxes and a 10% penalty!)

Carol Topp, CPA

Boards, Bylaws and Budgets for Your Homeschool Co-op

 

Does your homeschool co-op have a budget?

When running your homeschool co-op, you should have a board, bylaws and a budget. In this short podcast episode (10 minutes), Carol Topp, CPA offers advice and tips on these important topics to running a successful group. This podcast is an excerpt from a workshop titled Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out.

 

 

In the podcast Carol mentioned other podcast episodes in this series. Find them (#121-125) at HomeschoolCPA.com/Podcast

 

Featured resource

Phone Consultation with Carol Topp, CPA

Phone Consultation: A pre-arranged phone call to discuss your questions. My most popular service for homeschool leaders. It’s like having your own homeschool expert CPA on the phone!

Cost: $75/hour to nonprofit organizations.  $100/hour to for-profit businesses. $60 minimum.

Q &A by Email:  I am willing to answer questions by email, but it is very time consuming to read and reply to emails. I charge a reduced rate of $50/hour to read and reply to emails. Minimum $25.

Contact HomeschoolCPA, Carol Topp, CPA, to arrange a telephone consultation.

Click Here to request more information!

Carol Topp, CPA

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Should my homeschool group tithe?

If we want to tithe on our income (from registration fees and donations) are there any restrictions, red tape, or regulations we should know about? Do you have advice or thoughts on tithing by a 501(c)(3) tax exempt organization?

Homeschool leader in Idaho

 

The only restrictions is that the purpose of recipient of your tithe must be in line with your exempt purposes (charitable, educational and religious for this particular group).

So you shouldn’t give any part of your tithe to a for-profit business or to a nonprofit whose mission is outside of your purpose as you indicated to the IRS when you applied for 501(c)(3) tax exempt status (say an animal shelter).

Most 501(c)(3)s do not tithe because they consider themselves as recipients or stewards of donations for their specific mission. But some organizations do tithe. My church, for example, budgets 13% of our income to missions. We consider that part of a tithe.

From a Biblical perspective, it’s unclear if nonprofits should tithe.

Here’s a blog post from a pro-life group LifeMatters Worldwide with food for thought:

Should your ministry give a portion of your budget to the Lord’s work? That sounds good, but isn’t 100 percent of your budget already dedicated to advancing the Kingdom to your particular target audience? If you believe that a nonprofit organization should give because God will bless you in a special way, why stop at 10 percent?

Your board should discuss these questions:

  • If you choose to tithe, where would you direct the funds?
  • Would you give to a church? That could be problematic.
  • Would you only give to other similar agencies? Donors who give to your nonprofit expect that 100 percent of their gift will be used to support your mission.
  • What if you choose an organization that your donors don’t believe in?
  • Would they quit supporting you if they knew that a portion of their gift ultimately supported another organization that they don’t like? Their reason for not liking the other organization doesn’t have to be doctrinal or philosophical. Maybe they don’t like the director, or maybe they simply aren’t interested in that particular cause.

The blog post writer concludes with this:

When a nonprofit decides to give to other nonprofits, in a sense they become mutual fund managers. You are deciding for your donors how to spend a portion of their gift that is not directly connected to your ministry. As a donor, I’m writing a check because I want to support the impact your organization is making. If I wanted to support the organization that you choose for me, I would give to them directly.

The biblical instructions about tithing and giving primarily apply to individuals. Business owners may choose to tithe their income, but a nonprofit ministry should not view giving from the same perspective.

There is one critical difference — nonprofit organizations don’t earn income, you are merely stewards of the gifts someone has entrusted to your care to accomplish your mission. When you look at nonprofit tithing from a donor’s perspective, it doesn’t make sense to give something away that isn’t really yours.

I think that will give your board something to discuss!

Carol Topp, CPA

 

Carol’s book Money Management in a Homeschool Organization  will help your homeschool organization create a budget and live by it!

 

How long do I need to keep these homeschool group records?

From the I Am a Homeschool Group Leader Facebook group (if you’re not a member yet request to join us. We’d love to have you!)

 

How does your group handle old financial records? What do you keep, what gets tossed and when?

When I began as treasurer, I received tons of files, receipts, bank statements, old insurance policies, order forms and the like. Our group is 30 years old. It’s a lot of stuff! Don’t want to toss anything that’s needed, but thinking that much of this is not necessary anymore.

Julie

 

I found some helpful lists of what to keep and for how long:

Document Retention for US Nonprofits: A Simple Guide

Document Retention Policies for Nonprofits

Both of these lists are for large nonprofits with employees, buildings, etc. so the lists are crazy long and overly detailed for most homeschool groups.

So I culled it down to this:

Keep these records permanently

  • Articles of Incorporation
  • Determination Letter from the IRS
  • IRS Tax Exempt Application Form 1023/1023-EZ
  • Employer Identification Number (EIN) from the IRS
  • Bylaws
  • IRS Information Returns, Form 990/990-EZ or 990-N
  • State Information returns or annual reports

Keep for 7 years

  • Financial statements (year-end)
  • Canceled checks
  • Bank Statements
  • Leases (5 years after lease ends)
  • Background checks
  • 1099-MISC  given to Independent Contractors
  • Employment Tax records (Form 941, W-2s etc)
  • Payroll records (although one list said to keep these permanently!)

Keep for 3-5 Years

  • Minutes of board meetings (although one list said to keep these permanently!)
  • Invoices
  • Reimbursements
  • Receipts of expenses
  • Insurance  policies

 

Where do you store these documents and papers? Most of the documents will probably be stored at the Treasurer’s and Secretary’s homes.

But the documents to be kept permanently should be stored in a board members’ binders and passed down to future board members. Each board member should have a copy of the important “Keep permanently” documents.

I have created a Homeschool Organization Board Manual. It is a template to create a board member binder. It has:

  • A list of important documents to keep in your binder
  • Section dividers so you can organize the important papers
  • Tools to help you run your meetings smoothly including
  • A sample agenda that you can use over and over again
  • A calendar of board meetings