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Determining who is a true independent contractor and who is really an employee involves more than labels. The IRS, Department of Labor, state labor and employment boards, unemployment insurance and worker’s compensation authorities all investigate this. It also comes up in private lawsuits over benefits, liability, and more. See Winning Independent Contractor Battles.

The IRS recently issued a template focused on evaluating your own status. In IRS Publication 1779, the IRS looks at three areas: behavioral control; financial control; and the relationship of the parties to determine worker classification.

Behavioral Control. A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done—as long as the employer has the right to direct and control the work.

• Instructions. If you receive extensive instructions on how work is to be done, this suggests you are an employee. Instructions can cover a wide range of topics, such as:

1. How, when, or where to do the work;

2. What tools or equipment to use;

3. What assistants to hire to help with the work; and

4. Where to purchase supplies and services.

If you receive less extensive instructions about what should be done, but not how it should be done, you may be an independent contractor. For instance, instructions about time and place may be less important than directions on how the work is performed.

• Training. If the business provides you with training about required procedures and methods, this indicates that the business wants the work done in a certain way

Financial Control. These facts show whether there is a right to direct or control the business part of the work. Consider:

• Significant Investment. If you have a significant investment in your work, you may be an independent contractor. While there is no precise dollar test, the investment must have substance. However, a significant investment is not necessary to be an independent contractor.
• Expenses. If you are not reimbursed for some or all business expenses, then you may be an independent contractor, especially if your unreimbursed business expenses are high.
• Opportunity for Profit or Loss. If you can realize a profit or incur a loss, this suggests that you are in business for yourself and that you may be an independent contractor.

Relationship of the Parties. These facts illustrate how the business and the worker  their relationship. For example:

• Employee Benefits. If you receive benefits, such as insurance, pension, or paid leave, this is an indication that you may be an employee. If you do not receive benefits, however, you could be either an employee or an independent contractor.
• Written Contracts. A written contract may show what both you and the business intend. This may be very significant if it is difficult, if not impossible, to determine status based on other facts. See Ten Tips for Drafting Independent Contractor Agreements.

Robert W. Wood practices law with Wood LLP, in San Francisco.  The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at Wood@WoodLLP.com.  This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

Related posts:

1. Is your homeschool co-op’s hired teacher really an employee?
2. What Determines Independent Contractor Status?
3. Update on teachers as independent contractors

How You (or Your Child) Can Be a Published Author

at the 2012 Ultimate Homeschool Expo

This Expo allows you to listen to over 20 sessions live for free.

Or buy a ticket and listen to over 80 workshops from speakers such as Carol Topp, the HomeschoolCPA, Jeannie Fullbright with Apologia, Cathy Duffy, Maggie Hogan with Bright Ideas Press, Felice Gerwitz, and SO Many More!

My sessions include:

How You (or Your Child) Can Be a Published Author Listen LIVE May 2 at 11 am ET. Click here

The IRS and Your Homeschool Organization Buy a ticket to hear this pre-recorded session

What Your Teenager Can Learn from Starting a Micro Business Buy a ticket to hear this pre-recorded session

I hope lots of you can join me at the Ultimate Homeschool Expo 2012 live!

Carol Topp

Related posts:

1. 5 Ways a Homeschool Co-op Can Benefit Your Child
2. Give your heart a refill at the Schoolhouse Expo
3. Ultimate Homeschool Expo: Fall 2010

This week April 19-21 is the Midwest Homeschool Convention in Cincinnati.

Come by my booth #405, near the front of the exhibit hall.

Then hear me speak on the following topics:

What Your Teenager Can Learn from Starting a Micro Business Friday April 20 at 1:00 pm in the Millennium Hotel Colonnade room

Homeschool Co-ops: How to Start Them, Run Them, and Not Burn Out Friday April 20 at 2:30 pm in Duke Convention Center Room 250

The IRS and Your Homeschool Group Saturday April 21 at 10:00 am in Duke 234

How You (or Your Child) Can be a Published Author Saturday April 21 at 4:00 pm in in the Millennium Hotel Colonnade room

Carol Topp, CPA

Related posts:

1. See you in Cincinnati?
2. Meet Carol Topp at a homeschool convention near you!
3. HomeschoolCPA ebooks mentioned by HSLDA

Anyone going to the Midwest Homeschool Convention in Cincinnati this week?

There is a session on Thursday April 19, 2012 from 2-3 pm just for group leaders with Jen Henricksen, a seasoned homeschool group leader.

Register here (free) http://www.greathomeschoolconventions.com/group-leader-track.

They’re giving away a laptop!
Also, I’ll be giving a workshop on Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out on Friday at 2:30 pm

and another workshop, The IRS and Your Homeschool Organization on Saturday at 10 am.

Grab a copy of the handouts here.

I hope to meet some of you there!

Related posts:

1. Observations from the Midwest Homeschool Convention
2. Off to Home Educators Assoc of Virginia (HEAV) Convention
3. Pictures from Virginia Homeschool Convention

Hello, Carol.

I have learned so much from your website. Thank you for your expertise. I am part of a co-op and we need to open a bank account. I am in Texas.

My bank told me that we need the “assumed name certificate” as well as the EIN. We do not have an “owner.” Do I file as a Limited Liability Company?

Jennifer L
Texas

Jennifer,
I’m glad my website was helpful.

Becoming a Limited Liability Company (LLC) is a complicated issue for nonprofits.  Most small nonprofits such as your homeschool co-op do not become LLC’s because the IRS has 12 conditions that must be met for the LLC to be tax exempt. It may be more than you cared to learn, but it is important to understand the complexity of nonprofit LLC status.

Here’s a helpful article discussing LLC status and IRS tax exempt 501(c)(3) status.

http://www.insightcced.org/uploads/publications/legal/LLCs-as-exempt-orgs.pdf

The reason that most for-profit businesses obtain the LLC status is for limited liability. I organized my own sole proprietorship accounting practice as an LLC  because I wanted limited liability and protection of my personal assets.

For a nonprofit organization such as your homeschool co-op, nonprofit corporation status in your state brings similar protections of limited liability.

So if your main reason for seeking LLC structure is for limited liability, nonprofit incorporation in your state is the simpler option.

Read more about nonprofit incorporation here: http://homeschoolcpa.com/leader-tools/articles/ or in my latest book, The IRS and Your Homeschool Organization.

Now my “lawyer” words:

The information contained on this site is designed to provide accurate information in regard to the subject matter covered. However, this site is  not a substitute for legal guidance. This information is provided with the understanding that the author is not engaged in rendering legal advice. If such advice is required, the services of a competent legal professional should be secured.

Carol Topp, CPA

Related posts:

1. Should your homeschool group be an LLC?
2. IRS Intimidates Homeschool Group
3. What tax forms do I file for a homeschool co-op?

Hi Carol,

Our homeschool group needs liability insurance so we can continue renting space from a church.

Do you give insurance quotes, or can you direct us to someone who can?

Thanks, Janet

Janet,

I’m an accountant, not an insurance agent, but I did write several blog posts on insurance for homeschool groups.

Read the blog posts here: http://homeschoolcpa.com/blog/insurance/

You’ll find a few agencies that write policies for homeschool groups as well as advice on reducing your risk in your co-op.

Read my article Insurance for Homeschool Groups as well.

You can find it on my website HomeschoolCPA.com under Leader Tools/Articles.
http://homeschoolcpa.com/leader-tools/articles/

Related posts:

1. Is insurance needed for small homeschool groups?
2. Insurance for homeschool sports
3. Three kinds of insurance for homeschool groups

Hi Carol,

I am new to an existing homeschool co-op in VA. Tomorrow morning we are meeting to discuss our options as it relates to becoming a more formal organization. I want to be able to advise them as to their options on this.

This co-op is more then 12-15 years old, we do not accept donations or need to, so far we have been handling the money through someone’s personal bank account, we receive fees from students and then pay teachers and reimburse them for materials, generally we break even each year (or can if we need to), there are regular Board meetings, I do not know if they have bylaws or take minutes but I do know they have a mission statement. The bottom line is that we want to be able to have a business checking account.

Can we get an EIN in order to open a checking account in our co-op name without incorporating and without having a state or federal annual filing requirement? I seem to remember that once you get an EIN (that I think is required for a business bank account), you are on the radar screen with the IRS and will need to file some sort of return.

Thanks so much

Nancy in VA

Nancy,

Yes, you can get an EIN for banking purposes, but not have any other dealings with your state or the IRS. Many homeschool groups operate for years with no contact from their state or the IRS.
You will deal with the IRS if you become a 501(c)(3) tax exempt organization or pay workers.

BTW, I will caution you that if you are paying teachers, then you do have some reporting to the IRS and your state government. You will have to pay payroll tax (Social Security and Medicare) and file a W-2 if they are employees or file a 1099MISC if they are independent contractors. You should read this blog entry: Paying co-op teachers is a sticky issue

Best of success to you!

Carol Topp, CPA

Related posts:

1. Banker wants IRS letter to open a checking account
2. Getting an EIN (Employer Identification Number)
3. New EIN for New Officers?

I see several articles (on your website www.HomeschoolCPA.com) on setting up as a not-for-profit for homeschool organizations (e.g. homeschool co-ops), but I wonder if I could set my own family’s homeschool up as a non-profit. We’re in Texas, so we are considered a private school.
-Lauren in TX

Lauren,
You asked a good question and I’ve been asked it before in different ways. Nonprofit organizations have a lot of benefits including tax free income, discounts, and sometimes pay no sales tax!

I’m not a lawyer, nor familiar with Texas private school laws, but I’ll try to explain how I see things.

Briefly, a nonprofit organization exists to serve a group, not an individual. The IRS will not grant “recognized charity”, 501(c)(3) tax exempt status to a group that is formed solely to benefit the founder’s family. A tax exempt organization must serve a public good.

The IRS forbids private “inurement” in 501(c)(3) tax exempt organizations. Inurement means to be beneficial or advantageous. Inurement occurs when an organization is formed or operates with an incorrect charitable purpose that allows individuals in control to profit from the organization. 501(c)(3) organizations can lose their tax exempt status for practicing inurement.

Inurement/Private Benefit – Charitable Organizations

A section 501(c)(3) organization must not be organized or operated for the benefit of private interests, such as the creator or the creator’s family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. A private shareholder or individual is a person having a personal and private interest in the activities of the organization.
>From the IRS website at http://www.irs.gov/charities/charitable/article/0,,id=123297,00.html

So, in short the answer is “No”, even if your state classifies a homeschool as a private school. That’s how I see it.

Carol

Now, here are my “lawyer words…”
Any tax advice contained in this communication was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

Related posts:

1. Is my homeschool a nonprofit?
2. What does the IRS mean by not allowing “private benefit” in a fund raiser?
3. Does a nonprofit need to file any tax returns before they apply for tax exempt status?

Dear Carol:
I am interested in writing proposals for grants for my family’s home school. As an individual home school, not as a home school support group, I want to apply to receive small amounts of money for travel, museum entry, art gallery entry, books, posters, etc. More often than not, I find this statement :

“All applicant organizations or sponsoring agencies must be exempt from federal taxation under the Internal Revenue Code Section 501, in order to be eligible for funding.”

What do I have to do to have our home school be exempt from federal taxation?

Thanks.

Nancy H., Mississippi

Nancy,

You asked an excellent question. You are correct that many fund raising organizations now require 501c3 tax exempt status. Some homeschool groups want to become 501c3 tax exempt organization just so that they can participate in some fund raisers. I have a homeschool co-op as a client right now applying for 501c3 status.

A private individual or family cannot be a 501c3 tax exempt organization. The reason is that the IRS does not allow tax exempt organizations to offer private benefits or what they call “inurement” (meaning to become beneficial or advantageous) to individuals. Tax exempt organizations must benefit a group, preferably the general public.

I have been asked your question before so I wrote about it on my blog. Here’s the link: Can my family’s homeschool be a nonprofit?

You might also read my blog entry on doing a family fund raiser: Can my individual homeschool have a fundraiser?

I hope that helps!

Carol Topp, CPA

Related posts:

1. Can’t we operate without IRS tax exempt status?
2. Congratulations on 501(c)(3) tax exempt status!
3. IRS starts revoking tax exempt status May 17

Do homeschoolers get any tax breaks for their homeschooling expenses? Can a homeschool family deduct any of their homeschool expenses?

The simple answer is “No; there are no tax credits for homeschool expenses from the federal government.”

The longer answer is “Maybe, depending on what state you live in.”

Several states have an educational tax credit. Iowa, Arizona, Minnesota and Illinois all have some sort of  tax break for individuals. The credit is available to any public or private school student, so it is not unique to homeschoolers. Florida and Pennsylvania offer businesses tax credits if they sponsor a scholarship.

This document has a chart of education tax credits and deductions by state (updated November 2008). Scroll to page 6 to see the chart.

http://www.house.leg.state.mn.us/hrd/pubs/feelaw.pdf

Home School Legal Defense Association has an explanation of some states’ tax breaks or credits:

http://www.hslda.org/docs/nche/000010/200504150.asp

Homeschoolers can get creative and think perhaps they can start a business or a nonprofit organization of their homeschool activities and then deduct their expenses.  Ann Zeise of A to Z Home’s Cool addresses these ideas:

http://homeschooling.gomilpitas.com/articles/031401.htm

You cannot contribute to your own child’s K12 education and get any tax deduction for it, no more than if you sent him to a private school and tried to write off the tuition.

Carol Topp, CPA

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Related posts:

1. Educator Tax Deduction for Homeschoolers?
2. Do homeschool teachers get the Educators Expense deduction?
3. Can homeschoolers take the $250 educator tax credit?