I’m a Classical Conversations Director. Do I have to file any forms with the IRS?

On April 15 last year (you know, that day the personal tax returns are due!), I received this email:

I need to be sure I don’t have any tax forms to file with IRS. This was our first year as a CC community, with only 2 tutors and 12 children.
-Name withheld to protect the guilty

 

Just as aside before I answer her question: This CC Director treated her tutors as independent contractors all year long. That may or may not have been the proper worker classification for them. She may have exerted enough control over the tutors that they should have been treated as employees, but I did not address that issue with her. At this point, what the director did in the past with regard to paying her tutors is done; it cannot be changed now. I addressed what she needs to do now to properly file her taxes.

Dear Name withheld,

As a Classical Conversations (CC) director, you are a small business owner.

You should have given your tutors a Form 1099-MISC to report the income you paid them (assuming you classified them as independent contractors). The Form 1099-MISC is to be given to each tutor by January 31 each year for the income paid in the prior year. A copy is also sent to the IRS. It sounds like you missed that deadline.

By the way, you cannot simply print the Form 1099-MISC from the IRS website. You must order forms from the IRS, purchase them at an office supply store, or use an online filing program like Yearli.com (that’s the service I’ve used to file my 1099-MISC).

You should also have reported your income and expenses from your CC business on your personal income tax return, using Form 1040 Schedule C Profit or Loss from Business.

If you had a profit of more than $400 for the year, you will also owe Self-Employment Tax. It is calculated on Form 1040 Schedule SE.

I’m afraid you are very late in filing these forms! You may owe a penalty for late filing your 1099-MISC forms. You may need to file an amended federal income tax return (Form 1040X)  if you failed to include your CC income and expenses. You may also need to amend your state income tax return.

I strongly recommend that you contact a local CPA to discuss amending your  federal and state income tax returns.

You may also need to address if independent contractor status is the proper classification for your tutors. My book Paying Workers in a Homeschool Organization can help you determine the best classification for your workers.

Carol Topp, CPA

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Comments

  1. Carol, I really appreciate all of your advice that you are putting out there. I am also a Classical Conversations Director. I recently watched your webinar “Business Failure in the Homeschool Marketplace” and came away believing that the CC tutors are really not Independent contractors but employees. Then I come to your website and read this advice specifically to CC Directors. This is saying that they are Independent contractors and we need to provide a 1099. Can you please clarify if I am missing something. There are a lot of CC directors in a panic right now over wanting to do the right thing.

  2. Carol Topp says:

    In my webinar I was primarily addressing the worker status of teachers and tutors. In this blog post I addressed CC Directors.

    I did not say CC Directors are ICs. They are not. I wrote, “As a Classical Conversations (CC) director, you are a small business owner.”
    A CC Director is NOT an independent contractor to her own business. She is the owner of the business hires employees or ICs to work for her in the business.

    A business owner/CC Director should not give herself a 1099-MISC. Instead she reports all her income and expenses on her tax return and her “pay” is the profit from the business that she gets to keep.

    I hope that helps,

    Carol Topp, CPA

  3. I think what Patty is saying is that your webinar seems to indicate that TUTORS are not really ICs (or it would be rare if they were given CC’s very specific methods and training a tutor must follow), but this post seems to advise that CC directors should issue 1099-MISC to tutors as opposed to W-2 as if they are employees. This post seems in direct opposition to some of your other posts. I know there are a LOT of questions about whether a CC director *can* pay her tutors as ICs, but my personal experience was that the level of control exerted over me, as a tutor, seemed very much like I was an employee, not an IC, and I have just recently heard from a CC director whose CPA advised her that her tutors are NOT ICs. So, which is it?

  4. Carol Topp says:

    Thank you, Sue, for helping me understand Patty’s confusion. I can see how this post would be confusing. I think I’ll add a few sentences to clarify.

    In the post the Director had treated her tutors as independent contractors all year long. There is no fixing that or changing the past, so I responded to the reality facing her: that she needed to give her tutors a 1099-MISC. I did not address whether it was correct that she treated them as independent contractors. That is an issue she will face going forward. In this blog post, I was trying to address her past.

    Carol Topp, CPA

  5. Thanks, Carol. I re-read my comment and I didn’t like the tone – sounded aggressive. I have serious concerns about CC’s business setup. I recently read your blog post about how the way you pay your teachers in a homeschool co-op could affect the host church’s property tax exempt status. http://homeschoolcpa.com/how-you-pay-your-homeschool-teachers-could-affect-the-property-tax-exemption-for-your-host-church/
    My concern is renewed and now more complex. Why don’t most of the CC directors I come into contact with know these things? I have directed the ones who have questions to your website, asked them to ask a lot of questions of their “local representatives”, and suggested they consult a tax attorney. I hope slowly this information is seeping out. Thank you for doing what you do to help that!

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