Questions on taxes, incorporation and leaving a group

I saw your website and had some general questions for you. Appreciate your ministry to homeschoolers.

1. – Why is the pooling of (already taxed) money from homeschool families and then using it for a rent, insurance and contractor teacher a taxable event in the first place?  Why is it consider “income” if it is just collecting of money to be directly paid out for expenses like rent?

2.  We are trying to decide whether to go with recording our homeschool coop fees/expenses on schedule C of one person or try to establish a unincorporated association. What would be the pros and cons of them?

3.  Lastly, if we set up a unincorporated association via the state under my name but I leave the homeschool coop, how does the state and IRS know that I am no longer part of this association though my SSN or name or address was a part of it when it was established?

Thank you and look forward to your advice.

Teri

 

Teri,
Good questions! I’ll do my best to understand what you are asking and answer them correctly.

1. When any organization collects money, it is considered a for-profit business. Tax is paid on the surplus (i.e. profit) of the business (not the income). No tax is paid if there is no surplus. Some organizations have a charitable, religious or educational purpose and are granted tax-exempt status by the IRS.

2. A Schedule C entity would be a taxable business entity owned, and therefore controlled, by one person. The owner will bear the sole responsibility for its success or failure and be responsibility for all risk, liabilities and taxes due.

An association is controlled by a group of people and could apply to be tax exempt. The decision rests on the atmosphere of the group; is it perceived to be a joint effort or owned by only a single person who provides services for a fee? It is usually easier to build a cooperative spirit and a base of volunteers with a nonprofit association. Volunteers are usually less willing to give their time freely to a for-profit venture.

3. If a leader or founder leaves an organization, they can notify the state. Every state has a different procedure for doing this. Usually corporations are required to provide the name of a registered agent (someone who knows how to contact the organization and agrees to receive court summons and official correspondence from the state). If the registered agent changes, a form is filed with the state supplying the new agent’s name and address.

In general, it is common practice for the founders (original incorporators) of a nonprofit corporation to change after several years. In my experience, most states do not keep track of new board members or leaders; they only desire the registered agent’s name be kept current. Some require annual reports and a listing of officers.

I think that answers all of your questions! I hope it helps your decision making!

 

Carol Topp, CPA

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