Homeschool Leader, Do You Need Help?

I know that being a homeschool leader is not an easy job.  You have taken on extra responsibilities in addition to homeschooling your own children. But help is on the way!

I am so pleased to announce several ebooks and audios for homeschool leaders are now available


A 39 page ebook covering money management for small, medium and large sized groups. Sample forms and examples of financial statements in clear English are provided. Also covered are topics such as using Quickbooks, collecting fees, creating a budget, insurance, and hiring paid teachers. All written specifically for homeschool groups.
Price: $10.00 (immediate download as a pdf file)
Read more and order here

A 51 page ebook explaining the pros and cons of tax exempt 501c3 status. Is it needed? Is it worth it? Also covered are non profit incorporation, the application process, and how to maintain tax exempt status. Written specifically for homeschool groups.
Price: $10.00 (immediate download as a pdf file)
Read more and order here

A  62 page ebook containing some of the most frequently asked questions from homeschool leaders on the IRS, nonprofit and tax exempt status, boards, conflict, money, fund raising, volunteers, paying workers and insurance.
Price $8.00 (immediate download as a pdf file)
Read more and order here

A 20 page ebook that covers paying workers as employees or independent contractors.  Includes sample forms, tips and advice to help you pay workers in accordance with the IRS laws. Written specifically for homeschool organizations.
Price: $7.00 (immediate download as a pdf file)
Read more and order here

Are You Ready? Tax Exempt 501c3 Status for Homeschool Organizations

audio download
An hour-long audio that explains the advantages of 501c3 tax exempt status for your homeschool group. What’s involved, what will it cost and is it worth it? All specifically for homeschool groups.
Price: $7.00 includes a file of the presentation slides
Read more and order here

An hour-long audio that explains the importance of boards, budgets and bylaws in a homeschool organization. Get your group set up correctly and running smoothly. All specifically for homeschool groups.
Price: $7.00 includes a file of the presentation slides
Read more and order here


I hope you find these ebooks and audios helpful as you run your homeschool organizations.
Carol Topp, CPA

Banker wants IRS letter to open a checking account

Hi Carol,

At your leader meeting a few months back, you had recommended that all of our groups have the same EIN number.  When a group leader tried to change their account to one using our EIN, the banker wanted a copy of our original letter from the IRS.   I told the banker that we have never had to provide anything except a letter from me (one who obtained the number in 2002) and the EIN number which we provided.  He said it was just a personal preference of his.  Have you heard of this?  I am uncomfortable doing more than what is usually required and providing personal paperwork to him.  Am I being unreasonable, or do you think it is okay to provide it?   Thanks for any insight.

Debi in Indiana

Debi,

I’m with you-the banker should not need an IRS determination letter (I assume that’s what’s he is talking about) to open a nonprofit checking account. Some nonprofits never get a tax exempt determination letter from the IRS because they self declare their tax exempt status and never formally apply. (Note: only churches, social clubs and charities with less than $5,000 in annual income can self declare tax exempt status; all other organizations must apply for tax exempt status).

Most nonprofits need a checking account before getting IRS tax exempt status because the IRS charges a fee to process a tax exempt application!

Don’t believe the banker if he says an IRS 501c3 determination letter is required to open a checking account (fortunately he said it was his personal preference).  I once had a bank teller  tell me that nonprofits couldn’t earn interest on their savings accounts because they were nonprofit!  She was greatly mistaken. Bankers don’t always know what they are talking about (outside of banking…)

Carol Topp, CPA

Debi followed up my reply with the following

I think there is some confusion on what the bank manager is asking for.

I don’t think he is asking for us to prove that we are a 501c3 non-profit as recognized by the IRS. I think that all he wants is a copy of the letter from the Department of the Treasury that assigned us the EIN number. He probably doesn’t even know the right terms for what he is asking.

Yes, I think you are correct.  The banker may have only been asking for the EIN paper from the IRS, not a 501c3 determination letter.
I guess he’s being careful about getting the EIN correctly from the IRS letter itself.  I can’t blame him for that.

Carol Topp, CPA

Finding a CPA for your nonprofit

I wrote this article for Step by Step Fund Raising titled

A Good CPA is Hard to Find

by Carol Topp, CPA

Your nonprofit needs professional accounting help, but a good CPA can be hard to find. You desire someone who is knowledgeable but understandable, experienced but still affordable, and professional yet interested in your mission.

How to find a CPA to help your nonprofit:

  • Tell your staff, members and volunteers of your need and request that they ask friends and neighbors for referrals.
  • Mention your search for a CPA in your newsletter.
  • Look over your member or donor list for CPAs and  call to see if they are qualified and interested.
  • Join an on line professional network like LinedIn.com, join some groups and post your need.
  • Call your state CPA society for referrals. WebCPA.com lists state CPA societies at.
  • Ask other local nonprofits for their CPA’s contact information.
  • Use an on line matching service such as Accountants for the Public Interest that matches volunteer CPAs to nonprofits at.

Finding a qualified CPA is the just the beginning. You also desire a good working relationship that benefits your nonprofit more than it costs.

When you work with an accountant:

  • Be specific about the task
  • Ask for an estimate of their fee
  • Request an engagement letter that will spell out the specific tasks and estimated cost
  • Inquire if the charges can be reduced.  Some CPAs will offer a discount if you can delay work until after tax season.
  • Discuss how much of the work your staff or volunteers can do to help reduce fees.
  • Ask for lower cost alternatives. For example, a review of your financial statements may suffice instead of a full audit which is much more costly and time consuming.
  • Be prepared to ask questions, read and learn on your own

Seek out an accountant that has the ability advise you about the financial side of your nonprofit. You should feel comfortable with him or her and be free to ask questions. A good accountant is not just a bean counter; they are also a business advisor. They should explain issues and financial statements in a language that is accurate, yet understandable. If you leave a meeting with your accountant feeling confused, you should find another accountant.

Ask a potential CPA these questions:

  • How many nonprofits do you have as clients? Hopefully, the accountant has clients similar in size to your organization. Size is usually measured in staff size, number of clients served or annual revenue.
  • What is your area of specialty? Some CPAs conduct audits while others specialize in preparing the annual IRS Form 990. Select an accountant that matches your needs.
  • With whom will we be working? In medium and large accounting firms there are several layers of management.  The person doing the original interview may not the one doing the work.  Alternatively, in a small or solo firm you will probably work with only one individual.
  • May I see your biography or Curriculum Vitae  (CV)? Look for participation on church or community boards, published articles and professional memberships.
  • Can you explain to me the reporting requirements for my nonprofit? This type of question is really a test to see how well the CPA explains IRS guidelines.  Is their explanation understandable to you or do they lapse into accounting jargon?
  • Do you charge by the project or by the hour?
  • Am I free after this engagement to call you with questions?  Will I be billed for the phone call?

After their first audit, a small, but growing, nonprofit asked their CPA, “ How do we compare to other nonprofits? What can we be doing better?”  The CPA was unable to answer their questions.  He was good at number crunching, but he could not see the bigger picture and seemed unable to offer advice. The director was quite disappointed. They used the techniques mentioned here and found a qualified, helpful CPA with a reputable firm that guided them through many successful years of expansion.

Carol Topp, CPA //

Have we hit the $5,000 mark?

I am trying to do some research on the non-profit status for our Homeschool group and cannot find a clear answer. We are trying to see if we have hit the $5000 gross receipts limit.

Would money that individual members write to the group, so that the group can write one check to an organization, for instance a field trip, be considered in the gross receipts?

Nikki E

Nikki,
All money that comes in, even if it goes out almost right away like for a field trip, is considered gross income.

Not difficult to get over that $5,000 limit, is it?

To help in your research you might want to read my The IRS and Your Homeschool Organization

 

Best of success to you,

Carol Topp, CPA

How Much to Keep in Cash Reserves?

Bag of coinsHello,

I am wondering whether you have any guidelines about a good amount of cash to keep in reserve, or what to use as a basis for determining the amount of cash. We have a substantial surplus, growing every year despite our efforts to price classes at a close to break-even rate.

Thank you!
Shaun S in Minnesota

Shaun,

What a wonderful position to be in-cash reserves growing each year! Many for-profit businesses are not doing that well!

It’s a little difficult to be specific without knowing how you operate, such as do you collect all fees at the start of the semester or do you operate month to month.  Can families drop out or join mid semester? Do you offer refunds of fees paid if a family drops out? etc…

Basically, the tighter you run your cash flow (i.e., only collecting a month at a time), the more you need in reserve.

I recommend that you look at your sources of income.  Imagine any one item being eliminated, such as a major fund raiser. How would you run your co-op without that source of income? Sometimes when a nonprofit loses a major source of funding, it needs to fall back on cash reserves for a while.

Here are a few guidelines to help you determine the amount of cash reserves needed:
1. Have at least 10%, maybe 15% of your income in reserve for emergencies, damages or disasters.
2. Have at least one or two month’s rent in reserve in case you need to move locations.
3. If you pay employees, have at least three months of their pay  in reserve.
4. Consider creating a future plan of major purchases (like a computer or software) or programs you’d like to offer. Your surplus could be applied to your “wish list.”
5. Have at least enough in reserve to cover the deductibles on your liability and medical/accident insurance.

Here are a few ideas of what to do with your cash surplus:
1. Offer reduced fees to hurting families. In my homeschool co-op, we have a widow and another family with a disabled father, so they get free access to our co-op classes.
2. Offer reduced fees for significant volunteer efforts. We offer teacher discounts and discounts to our co-op director.
3. Make a contribution to the location you are renting if  it is a church or community organization.
4. Have an end of year party with a catered dinner.
5. Give appreciation gifts to all your volunteers.

I hope that helps!

Carol Topp, CPA

Group using personal Paypal account

money_exchange_100Hi Carol,

Our (homeschool group’s) yearbook is looking take in the money thru my personal paypal account, then deposit it into an separate bank account so that our Assoc. does cross over the $5000.00 mark. How is this done so that I don’t have to claim the money as extra income.

Currently the association is trying to do a paypal account not just for yearbook for membership dues, they are hesitant because they set up the a paypal account under non-profit, paypal is wanting proof of this and we don’t have it. I suggested that they explain to paypal that they we are a Unincorporated Non-Profit Assoc. and it should be fine.

Sandy in TX

Sandy,

The ideal way to operate is to set up a Paypal account for the association/homeschool group and not run anything through your personal Paypal account.

I understand from other homeschool leaders, that Paypal expects to see proof from the IRS of tax exempt status. They may also accept a nonprofit incorporation certificate from your state. They told one homeschool group they would accept “certified Articles of Incorporation.”

One homeschool registered with Paypal as “Category: Education, Subcategory: Elementary and secondary schools.” While not as accurate as “Charitable/Nonprofit”, it got the job done!

If your organization is not a nonprofit corporation or doesn’t want to be classified by Paypal as as a school, then tell your board that you are using your personal Paypal account and have them record it in the minutes of a board meeting. (“Sandy agreed to allow use of her personal Paypal account for the yearbook project”) Keep a very clear paper trail just in case you are ever audited by the IRS. Keep paper records of every transaction and especially the transfers in and out of the Paypal account. Make print outs from Paypal and file them away with wherever you keep your tax return information. (Do NOT send them to the IRS with your tax return.)

Anyone had problems setting up a Paypal account for their homeschool organization? Id like to hear your experience.

Carol Topp, CPA

Can my individual homeschool have a fund raiser?

HomeschoolCPA has been asked this question twice lately,

Can we (an individual homeschool) be allowed to do fund raising similar to youth sports groups, scouts,etc?

What a good question. In general I say, Yes, you can participate in a fund raiser if the fund raising organization allows it. BUT, the profit you make is taxable income and you’ll need to report it on your tax return.

Another homeschooling mom e-mailed me with a similar question:

With 6 children needing school curriculum, we are coming up short in finances. We contacted a calendar company that said it would be permissible for us to sell calendars as a fund raiser for our homeschool. We accepted personal checks made out to our homeschool name (that we registered with the state school board, considered a non-profit private school). We do not have a checking account with our homeschool name on it. Therefore, we have no way to deposit them.

What is your advice to us? The checks amounted to $90. Is this method acceptable to continue as long as we pay taxes on it? Mrs. W.

By selling calendars Mrs W. was operating a small for-profit business. She is free to use the profit of the small business for anything she wishes,including homeschool books and supplies. Since Mrs W. didn’t mention what state she was in I cannot tell if her state requires business registration. Many do not require any type of registration for a sole proprietorship using your own name. You may have to file a name registration with your Secretary of State to establish a business name.

To deposit these checks Mrs W. need to open a checking account in the homeschool’s name. You’ll have to get an EIN number from the IRS at www.irs.gov (See the Q&A on my website for details www.HomeschoolCPA.com). You can then spend the money in the checking account on homeschool supplies and close it or keep a small amount in it until next year.

Mrs W. should report the $90 as income on her tax return as either Other Income on line 21 of the 1040 or on Schedule C Business Income if she had expenses from the sale of the calendars (postage, mileage, etc…)

Quite a mess for a $90 fund raiser, huh? Before you try a fund raiser for you individual family homeschool make sure its worth the effort of getting a business name, EIN, and checking account. Maybe try having a garage sale or sell something to bring in income instead!

Carol Topp, CPA

Board, Bylaws and Budget

A homeschool leader is asking some excellent questions about writing bylaws, establishing a board and collecting money.

Dear Carol,
I am co-directing an established homeschool group and we are in the process of writing by-laws. My question is:

  • Is it okay to not allow members to have a vote pertaining to the decisions of the homeschool board?
  • Can the by-laws be set up to allow suggestions and recommendations from the members at the approval of the board?
  • Also, is it legal to initially appoint a board without a vote and then fill vacancies at the discretion of the established board?

Our concern is to protect the vision of the homeschool group.

Your website has been a tremendous help to us as well as your article in The Old Schoolhouse magazine. Thank-you for your time and ministry to homeschoolers.

Misty M

 

Misty,
You have asked several good questions. Your group is fortunate to have you as a co-director.

Yes, it is OK to not allow members to vote; I have been on several nonprofit boards that do not have members vote.

Yes, you can set up your bylaws to allow final approval of ideas to be a board responsibility. You may establish a practice of considering suggestions and recommendations; you may not need to formalize the practice in the bylaws.

Yes, you can appoint a board without a member vote. This is done quite frequently on nonprofit boards, especially fine arts boards (i.e., art museums, symphonies, ballets, etc). Many boards find their own members from interested members, volunteers or patrons.

As a guideline, your board should remember their fiduciary duty (duty of care and duty of loyalty) to manage the funds with the purpose/mission of the organization in mind and not for private gain or benefit.
The board’s job is

  • to provide for fiscal accountability,
  • approve the budget, and
  • formulate policies”

From “Major Duties of Board of Directors

In other words, think first of what is best for the organization.

You might find my Homeschool Organization Board Manual to be helpful.

It is a template to create a board member binder. It has lists of important documents to keep in your binder and tools to help you run your meetings smoothly including a sample agenda that you can use over and over again.

But this is more than just a few cover sheets for your binder. It is also a 55-page board training manual with helpful articles.

I hope that helps!

Carol Topp, CPA