Giving Scholarships or Discounts in Your Homeschool Group

Does your homeschool group give discounts, scholarships or benevolent gifts?

What’s the difference and how should they be operated?

Homeschool CPA, Carol Topp, offers advice and tips on offering help for needy members in this short podcast episode (15minutes).

 

 

I mentioned my book

Money Management in a Homeschool Organization

  • 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.

 

Carol Topp, CPA

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Used curriculum sales and taxes

When a homeschool group has a fund raiser like a used curriculum sale or mini-exhibit hall is the income taxable?
Thanks,
Dorothy
Dorothy,
Fundraisers are usually considered unrelated business income, meaning that the fundraiser activities are not related to your organization’s tax exempt purpose. In other words, a homeschool group’s purpose is education, not selling curriculum or hosting an exhibit hall.

 

Unrelated business income is taxable income. It’s called UBIT-unrelated business income tax.

 

From the IRS: Unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization’s exemption. An exempt organization that has $1,000 or more of gross income from an unrelated business must file Form 990-T (and pay federal income tax).

 

Fortunately, the IRS has several exceptions to paying the UBIT tax:

  • A $1,000 threshold allows that the first $1,000 in gross revenues 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.
  • If the fundraiser is not regularly carried on, such as a once-a-year unsed curriculum sale, then the proceeds are not subject to UBIT.
  • If you are selling donated items, like in a garage sale, the income raised is not taxed.

One of these exceptions are bound to apply to most homeschool organizations.

So, while the income from an unrelated business activity may be taxable, in reality, no tax will be paid because one of the exceptions mentioned above applies.

 

Carol Topp, CPA

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Recording scholarships in homeschool group bookkeeping

 
Hi Carol,

How are scholarships recorded in our homeschool co-op’s bookkeeping? We charge an amount for classes but would like to provide a scholarship and return the full amount of tuition or provide a partial scholarship back to the family. For example, we collect the full tuition payment due but then write a check with a certain scholarship amount back to that same family. Is that considered simply as an expense?

Thank you so much!
Sharon

 

Sharon,

What you call a scholarship is really a tuition discount.

The best way to handle this is to give the discount BEFORE the family pays anything. Then the payment is recorded as income (although smaller income than originally budgeted).

If instead you wish to return some of the tuition a family pays, then you record it as a reduction income. We accountants call it a “contra-income” account. Sort of a negative income account. It’s not an expense; it’s a reduction in income.

Something like this:

Income

Tuition Payments: $5,000

Tuition reduction to needy family: ($500) numbers in parentheses are subtraction or negative numbers

Total Tuition Collected: $4,500

So, it’s not recorded as an expense, even if you write a check. It’s recorded as a contra-income (or a reduction in income) transaction.

I cover this topic and many more in my book, Money Management in a Homeschool Organization. You might find it helpful.

Carol Topp, CPA

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Returning homeschool co-op supplies to parents

Carol,
How should our homeschool co-op should handle classes where there are nonconsumable items purchased?  We had a class where Lego kits were purchased for a class.  Students shared kits and we charged a small fee.  Now parents think they should get half of the kits or that future classes should have to pay for the kits and they receive a credit each time.
We have never done that with any classes in the past.  It has always just become property of the co-op.  It sounds like it would be a bookkeeping nightmare.
Thanks for your input,
Becky  in KY

Becky,

You’re right, tracking the LEGO kits sound like a bookkeeping nightmare.  I like to keep things simple but as fair as possible.

We had a similar situation in my homeschool co-op with Spanish books.  The teacher bought a curriculum to use and was planning on spreading out the cost of the teacher manuals and CDs over two years of students. It took some guess work to figure out how many students she would have this year as well as future years.  In the end we decided  that this year’s students would end up paying for a portion of the teachers books and CDs.  The rest of the cost was absorbed by the co-op as a whole. The co-op then owned the teacher books and CDs. Future Spanish classes were charged a small supply fee so that the co-op could recoup the cost of the teachers books and CDs.

I think the co-op should own non consumables, not the individual parents. Sounds like that’s how you have done it in the past. Parents pay a supply fee, but are not entitled to the equipment afterward nor a credit from future students.

So maybe instead of charging the current students full price for nonconsumables, your co-op could try to save up some money over a few years and purchase nonconsumable equipment that will be owned by the co-op. Or have a fundraiser to buy the equipment.

Carol Topp, CPA

Is a surplus added to next year’s budget?

Carol,
When does extra money from the previous year’s budget get added into the new year’s budget? Our treasurer  dumped all the leftover money from our prior year into the new year. I am pretty sure that isn’t supposed to happen. The way she has it, it looks as though we have $1,200 more to spend in next year than we really do.
Am I right to think that we have to base our budget with just dues that we hope to get in the coming year?
Angela

 

Angela,

Technically, a surplus (leftover money) never gets added to the next year’s budget. The surplus stays in your checking account (as an asset) and is reflected on the Balance Sheet (as the balance in the checking account), not as part of next years’ revenues.

In accounting we have two major financial statements: the Statement of Revenues and Expense (sometimes called Profit and Loss) and the Balance sheet which shows what you own (the assets) and what you owe (the liabilities).

Of course your board should have a plan for your surplus. Maybe it stays as an emergency fund or as the deductible on your insurance policy or is accumulated for a big future purchase (like equipment or a building). Some boards like to have the treasurer put a footnote on the Balance Sheet about money is kept in reserve and it’s purpose, so it doesn’t get spent. Or they move some money into a saving account, so it is less likely to be spent.

Something like this:

Balance Sheet as of DATE
Assets
Checking Account $5,400.00
Savings Account* $1,550.00
Total Assets $6,950.00

*Savings set aside for:
Emergency fund: $1,000
Insurance deductible: $500
Saving for science equipment: $50

“Am I right to think that we have to base our budget with just dues that we hope to get in the coming year?” I think that is wise fiscal management to live within your means each year.

My book Money Management in a Homeschool Organization would be very helpful to your treasurer.

Carol Topp, CPA
HomeschoolCPA.com

Is there a rule about keeping our nonprofit bank account under $25,000?

There has been a “rule” passed down from former leaders of our homeschool group to me that we have to keep our bank accounts under $25,000 or we will lose our tax exempt status. I do the books for another tax exempt organization and we often have our accounts over that amount.

I think they may be getting confused with the 990 rules regarding the limit to file the 990N, which is gross receipts under $50,000. Maybe it used to be $25,000?

In any case, that is gross receipts not assets and we don’t have gross receipts or assets over $50,000. So, I have never heard of this rule with the $25,000 bank balances, as I have done 990 taxes before. But I wanted to be able to feel confident that I did not miss anything and verified it with one other reputable source.

Can you tell me if I am correct in my assumptions?

Teri in Ohio

Terri,

You are correct!

They are confusing gross revenues (which used to have a threshold of $25,000 for filing the the 990N) with assets.

Gross revenues are the total (gross) revenues (income) that come into your organization in a year. The IRS uses gross revenues as a threshold very frequently such as which annual information return, the Form 990 to fie.
Assets are what your organization owns. For most homeschool groups their assets is the money in their checking accounts.

A nonprofit organization can have any amount they wish in assets (in your case, the bank account).

For example, the American Red Cross has $517 million in cash and checking accounts (Source: Form 990 dated June 30, 2015). Their other assets include buildings, a huge investment portfolio, and inventory. They need all this money in reserve so that they can assist victims when the next natural disaster happens.

It’s not the first time I’ve heard gross revenues and assets get confused.

My book Money Management in a Homeschool Organization would probably be helpful. I try to make confusing topics like money and taxes clear!

Carol Topp CPA
HomeschoolCPA.com

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What homeschool leaders should do this summer to be ready for next year

Sometimes homeschool leaders take the summer off to have a break for running their homeschool programs. But Carol Topp, the HomeschoolCPA, doesn’t want you to completely forget about your homeschool group this summer. She offers a few tasks that you should do this summer to make the fall much easier!

Listen to the podcast

Carol mentioned this list of topics for your board to discuss: http://homeschoolcpa.com/calendar-of-board-topics-for-homeschool-groups/

Homeschool Co-ops:
How to Start Them, Run Them and not Burn Out

Have you ever thought about starting a homeschool co-op? Are you afraid it will be too much work? Do you think you’ll have to do it all by yourself? Starting a homeschool co-op can be easy! This book Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out will give you ideas, inspiration, tips, wisdom and the tools you need to start a homeschool co-op, run it and not burn out!

Click Here to request more information!

Homeschool Treasurers: Do this before giving your board a financial statement

Homeschool treasurers: before you prepare a financial statement for your board meeting you should reconcile your bank account!

Why is reconciling bank accounts so important?

Vickey Richardson of FreeChurchAccounting.com explains,

 I have discovered with my bookkeeping business that reconciling accounts are not very high on some organization’s to-do list. When accounts are not reconciled … financial statements are usually NOT accurate.

REMEMBER…before generating your financial statements, there is a process you should go through to ensure the accounting reports you give your pastor, treasurer, or governing council are accurate and complete.

One of the most important steps is the bank reconciliation!

See how to reconcile your bank account and additional steps you should take BEFORE you start on your monthly, quarterly, or annual reporting …

Bank Reconciliation First then Financial Statements

(click for Vickey’s detailed steps )

I completely agree with Vickey. When I see regular bank reconciliations, the financial statements are almost always correct. When a organization does not reconcile their accounts, the financial statements are usually a mess.

Vickey also reminds us that credit card statements need to be reconciled too! And so do PayPal accounts. A credit card or PayPal account is really just a type of bank account with inflows and outflows. So reconcile them monthly as well.

 

Carol Topp, CPA

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How Should We Handle Reimbursements in our Homeschool Group?

It’s that time of year when your homeschool group is trying to wrap up its finances for the year. In this podcast episode Carol  Topp, the Homeschool CPA, explains how to give reimbursements to your members properly, so they are not considered taxable income.

Listen to the podcast

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.

Click Here to request more information!

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How can I thank my volunteers?

 

It’s the end of your homeschool organization’s school year and you want to thank your volunteers. They work so hard, so you hand out generous gift cards as thank you gifts. You may have just created a tax liability for your volunteers! Carol Topp, CPA, the Homeschool CPA discusses ways to thank your volunteers that are tax-free.

Listen to the podcast

 

Do you have more questions about volunteers and paying workers? I spent at lot of time doing research so that homeschool leaders will know if they are paying their volunteers, board members, and workers legally and correctly. It’s all in this new book:

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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