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

Join the webinar tonight on starting an academic homeschool program

 

Are you considering starting a homeschool program? An academic program, not a co-op and not a for-profit business either. But a nonprofit organization with an academic focus, maybe a classical emphasis, too.

You’re motivated! But where to begin?

Carol Topp, CPA, the Homeschool CPA and Jamie Buckland are teaming up to to help you!

ABC’s of an Academic Homeschool Program

An hour-long webinar on Monday February 18, 2019 at 8 pm ET

Jamie Buckland of Classical Program Consultant has run both a for-profit classical homeschool program and is currently the Executive Director of Appalachian Classical Academy, a nonprofit 501c3 organization. She will share about Administration and Curriculum

  • How your culture affects an academic program when it comes to logistics.
  • What to look for in the Board of Directors
  • Why have an Advisory Council
  • Why employ tutors
  • How to train employees
  • How to assess employees
  • Why charge tuition
  • How to communicate with families
  • How to determine curriculum for your program

Carol Topp, CPA is the owner of HomeschoolCPA.com and has assisted more than 80 homeschool organizations apply for tax exempt status. She is the author of 15 books and will share about Business

  • Why and how to organize as a nonprofit
  • Applying for 501c3 tax exempt status
  • A timeline: How fast can you get this done?

There will be time for questions and answers.

  • Cost is $30 and includes live webinar access and ability to view the recording.
  • Jamie’s extensive questionnaire for homeschool parents looking to create a homeschool program.
  • Copy of Carol’s ebook The IRS and Your Homeschool Organization.
  • Slide handout

Getting an hour with these two experts and their materials would typically cost you $165.

Carol Topp, CPA

HomeschoolCPA.com

How to start an academic homeschool program

Learn the ABC’s of starting an Academic Homeschool Program

Have you considered wanting to start a homeschool program? An academic program, but not a co-op and not a for-profit business, either. But a nonprofit organization with an academic emphasis–maybe with a classical education focus.

Sounds like a great idea! But where to begin?

Feeling overwhelmed?

We’re here to help.

Carol Topp, CPA, the Homeschool CPA and Jamie Buckland are teaming up to to bring you:

ABC’s of an Academic Homeschool Program

An hour-long webinar on Monday February 18, 2019 at 8 pm ET

Jamie Buckland of Classical Program Consultant has run both a for-profit classical homeschool program and is currently the Executive Director of Appalachian Classical Academy, a nonprofit 501c3 organization. She will share about Administration

  • How your culture affects an academic program when it comes to logistics.
  • What to look for in the Board of Directors
  • Why have an Advisory Council
  • Why employ tutors
  • How to train employees
  • How to assess employees
  • Why charge tuition
  • How to communicate with families

Carol Topp, CPA is the owner of HomeschoolCPA.com and has assisted more than 80 homeschool organizations apply for 501c3 tax exempt status. She is the author of 15 books and will share about Business

  • Why and how to organize as a nonprofit
  • Applying for 501c3 tax exempt status
  • A timeline: How fast can you get this done?

Then Jamie wraps up by discussing Curriculum

  • How to determine curriculum for your program

There will be time for questions and answers.

  • Cost is $30 and includes live webinar access and ability to view the recording.
  • Jamie’s extensive questionnaire for homeschool parents looking to create a homeschool program.
  • Copy of Carol’s ebook The IRS and Your Homeschool Organization.
  • Slide handout

Getting an hour with these two experts and their materials would typically cost you $165.

Carol Topp, CPA

HomeschoolCPA.com

ABC Test for Independent Contractors

 

Is your homeschool teacher an employee or Independent Contractor?

In 2018 California Supreme Court tried to make that questions easier to answer with a simpler 3 part test: The ABC Test for Independent Contractor status.

Can You Pass The Three-Part ABC Test?

Listen to the podcast (11 Minutes) for Carol’s reply.

 

In the podcast Carol mentioned …

In the podcast I mentioned my paying teachers or tutors of others in a homeschool business or nonprofit organization. My book, Paying Workers in a Homeschool Organization has more information about paying Independent Contractors and employees.

Paying Workers in a Homeschool Organization

Are you paying workers in your homeschool organization?

  • Can a volunteer be paid?
  • Should a worker be treated as an employee or independent contractor?
  • Do you know the difference?

Homeschool leader and CPA, Carol Topp, has the answers to your questions in her book Paying Workers in a Homeschool Organization.

This 130 page book covers paying workers as employees or independent contractors. There are also chapters on paying volunteers and board members. It includes sample forms, tips and advice to help you pay workers in accordance with the IRS laws to help your organization pay their workers correctly. Written specifically for homeschool organizations.

 

Save

Save

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

The federal government might be shut down, but you still have to file 1099-MISC by January 31

The US government is partially shut down, but taxpayers still must file their 1099-MISC forms by January 31, 2019.

Your homeschool business, tutoring program, nonprofit organization, co-op or community must give a 1099-MISC to anyone you paid more than $600 in 2018.

 

Greatland cpa academy webinar yearli logo

I recommend you use an online filing system like Yearli.com Core program by Greatland (my affiliate link). I’ve used them for years.

Yearli by Greatland is the best way for businesses to file 1099 and W-2 forms.

I used to buy forms at an office supply store, upload the software, type in the data, run the forms through my printer, and mail them all off! Even just a few 1099-MISC could take a long time! And heaven forbid you misfeed the red ink IRS forms into your printer (I did!). You could not make a mistake or back to the office supply store to but another set! Ugh!

Yearli by Greatland makes it so easy and they charge only $4.99 per 1099-MISC. They send a copy to the IRS and mail a copy to the recipient. Simple!

You’ll receive 15% off your filings because I referred you.
You will need the following information:

  • Your business or organization’s legal name, address and EIN number
  • The recipient’s name, address, SSN number and total amount paid in 2018.

Don’t forget you have to have the 1099-MISCs completed by January 31, 2019!

 

Carol Topp, CPA

HomeschoolCPA.com

 

Is ignorance of tax law a good defense for homeschool teachers?

A homeschool leader became concerned about a paid teacher in her homeschool group. It seems this woman has not reported her income from teaching at the homeschool program for 7 years!

The teacher has refused to listen when others try to explain her tax obligation.

The leader told me that the teacher “stops me in mid sentence because she wants to claim ignorance if she were to get audited.”

She believes she could claim, “I didn’t know.”

 So is ignorance of the tax laws a good defense?

Not typically!

Typically, ignorance of the law is not a defense in our criminal justice system.  Under a long-standing legal fiction, defendants are, instead, presumed to know the law. Source: https://www.freemanlaw-pllc.com/cheek-defense-federal-tax-crimes/

 

But in this case, the teacher is NOT ignorant of her obligation to report her income.

She is willfully blind.

“Most courts agree that if the taxpayer willfully remains “blind” to his or her obligations under the tax laws, no valid defense can exist.” Source: https://thetaxlawyer.com/…/tax-law-mistake-ignorance…

 

In other words, since the paid teacher is being willfully blind, she has no defense as to why she is evading income tax.

And as a taxpayer I don’t like it when other people evade taxes!

 

Your responsibility as a homeschool leader is to file the required reports, either a 1099-MISC (for Independent Contractors) or W-2 (for employees) with the IRS by January 31 each year.

 

My book Paying Workers in a Homeschool Organization explains the required reports your homeschool group should be giving to its workers (and a whole lot more!)

Carol Topp, CPA

HomeschoolCPA.com

Should your homeschool Director serve as a board member?

Sometimes a homeschool groups gets large enough that they want to hire or pay their Director. In nonprofits that position is usually called the Executive Director or even Chief Executive Officer (CEO).

It is usually the first paid position in a nonprofit.

The Executive Director is similar to a pastor at a church. He (or she, depending on your denomination) is hired by the board of the church and does a lot of the day-to-day running of the church.

It’s similar in a homeschool nonprofit: the paid director is hired by the board to manage the day-to-day operations of the organization.

But should that hired Director serve on your board?

BoardSource (an excellent website for help in running your nonprofit board) says., ”

BoardSource also recommends nonvoting status for chief executives, unless not permitted by law. We embrace nonvoting status in recognition of the fact that actual or perceived conflicts of interest may naturally come along with the pairing of this position with board member status.

 

I, too, like the idea of a paid Director serving as a nonvoting board member.

I’ve seen it work well on some boards to have the Director attend meetings, give a report, share her opinion, etc, but not be allowed a vote.

When I served on my church’s board of trustees, the pastor came to the meeting, gave a report, was free to voice an opinion, but had no vote. That way he avoided a conflict of interest.

The paid Director should not vote because she has a conflict of interest: Is she thinking of the good of the group first and foremost or is she thinking about her job and her paycheck?

The volunteer Director does not have that conflict of interest, so he or she is usually still given voting rights.

If you decide to pay your Director:

  • Make sure you update your bylaws
  • Adopt a Conflict of Interest policy.
  • Read about paying people in your homeschool organization.

Need help with those issues?

 

My book, Homeschool Organization Board Manual can help with:

  • Sample Conflict of Interest policies
  • Sample Bylaws
  • Board descriptions
  • Compensation and Benefits for Board Members

 

Carol Topp, CPA

HomeschoolCPA.com

 

 

When someone volunteers you

 

Have you ever been volunteered by someone else?

I’ve volunteered a lot over the years, but it was my choice to volunteer.

Once I was volunteered (more like assigned) by a fellow board member to do promotion for our annual fundraiser. I was absent at the meeting where they divvied up the jobs, so when this board member called to tell me what I had been “volunteered” to do, she said, “Well, I thought you’d want to help out. Everyone else is.”

So I was volunteered and guilt-ed into it, too!

I declined, explaining that I had not experience or gifts in marketing and promotion a fundraising event.

It doesn’t feel good to be volunteered into doing something does it?

A homeschool mom emailed me to say that she teaches at a local homeschool program. The homeschool organization gives free classes to board members. That’s very generous of them.

This teaching-parent is paid based on the number of children enrolled in her class and was pretty surprised when she was told she would have two of a board member’s children in her class and they would “be pro bono cases.” That means she wasn’t going to get paid for these two students in her class! This teacher has a written contract with the homeschool group and it does not mention any “pro bono cases.”

Pro bono means “for the public good” and refers to an attorney offering his or her services for free to help a public cause.

I find it odd that the homeschool organization used the term “pro bono” like this. They shouldn’t obligate someone else (the teacher in this case) to work “pro bono.” It’s like volunteering someone else!

Some homeschool groups waive tuition and fees for board members, but that doesn’t mean the group should stiff the teachers! It means the homeschool group absorbs the cost themselves.

So homeschool leaders, go ahead and be generous. Offer discounts to your hard working board members (but read this to make sure the discounts are not taxable income to your board members), but please treat your paid teachers well too!

Don’t go “pro bono” or volunteer someone else. It’s just not nice.

Carol Topp, CPA

HomeschoolCPA.com

How does the IRS prove my homeschool group’s tutor should be an employee?

 

D. is a leader of a homeschool program, Classical Conversations, who asked me about the worker status of tutors in her program: Should they be employees or Independent Contractors? This question applies to many homeschool groups, not just Classical Conversations.

What evidence would the IRS use to prove an “employee” was “treated” wrong (i.e., misclassified as an Independent Contractor when they should be an employee)? If it’s how much freedom the tutor felt they had, I am confused.

If I hire a independent contractor to paint my walls do I not have full rights to specify how, what color, the time frame I need it done, etc? How can this truly be an issued PROVED by IRS?

-D.
(edited for clarity and spelling)

 

D.,

Let me clear up something.

The IRS rulings, decisions and determinations on worker status are based on common law, not scientific facts.

Common law is the body of law derived from custom and judicial precedent rather than statutes. Common law (also known as judicial precedent or judge-made law, or case law) is that body of law derived from judicial decisions of courts (Wikipedia definition https://en.wikipedia.org/wiki/Common_law)

The common-law system is used in all the states of the United States.

Common law and the IRS does not use the word “prove” as used in science. Instead judges and the IRS make judgements or determinations. Application of IRS regulations and determinations is not science, it’s law and that’s a different mindset.

Things cannot be “proven” in law like they can in science.

Under a common-law system, disputes are settled through an adversarial exchange of arguments and evidence. Both parties present their cases before a neutral fact finder, either a judge or a jury. The judge or jury evaluates the evidence, applies the appropriate law to the facts, and renders a judgment in favor of one of the parties. Following the decision, either party may appeal the decision to a higher court. Appellate courts in a common-law system may review only findings of law, not determinations of fact. Source: https://legal-dictionary.thefreedictionary.com/common+law

I’ve written several blog posts on the factors (or “evidence”) that the IRS considers in making a worker determination. Here’s one: Behavior Control of an Independent Contractor

Behavioral Control, which you mentioned in your question, is only one of the many factors to be considered.

The IRS says,

“Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.”

So citing an Independent Contractor painting your walls is not relevant in determining worker status of a teacher in a homeschool program or Classical Conversations group. They are very different situations.

A better comparison is an adjunct instructor at a local college. The IRS has several rulings about the worker status of college instructors. There have been several court cases involving instructors in an education setting. Reading these court cases and IRS rulings and determinations have led me to the conclusion:

Because instruction is a fundamental component of a homeschool organization, instructors, tutors and teachers should be treated as employees because the homeschool group will always exert control over these workers. (from Paying Workers in a Homeschool Organization by Carol Topp, CPA)

 

If you want more details, my book Paying Workers in a Homeschool Organization will be a big help.

I also offer a Worker Determination service to help decide if your tutors are misclassified as Independent Contractor  when they should be paid as employees.
Carol Topp, CPA