Checking accounts and EINs for homeschool groups

We have always had a checking account under a parent’s name. We were adding a name to our account this year when the bank informed us we can no longer do this and we need to have our own Tax ID number. Will we need to file returns with the IRS if we get a tax ID number?

I strongly discourage using a parent’s name on an organization’s checking account. The organization should have a checking account in its own name and use an Employer Identification Number (EIN), not an individual’s social security number.

Getting an EIN does mean your organization will need to do some annual reporting to the IRS.

It didn’t used to be this way.

Homeschool groups used to be able to get an EIN, open a checking account, and never have to file any annual reports with the IRS. All that changed in 2006 when Congress passed a rule saying EVERY tax exempt organization had to file an annual information return with the IRS, Form 990, 990-EZ or 990-N with the IRS each year.

Read my 990-N FAQ page for details.

 

IRS and Your Homeschool Org coverMy book, The IRS and Your Homeschool Organization, explains the IRS required filings for your homeschool group.
Carol Topp, CPA

EIN before or after incorporation?

Hello, Carol.

I have learned so much from your website. Thank you for your expertise. I am part of a co-op that currently has 22 families. I was one of the five founding members. We need to open a bank account. I am in Texas. I am confused about whether or not I am supposed to get us recognized through the state as a corporation before I can get us an EIN and open a bank account for the group.

My bank told me that we need the “assumed name certificate” as well as the EIN.

Jennifer L
Texas

Jennifer,
I’m glad my website was helpful.

You do not have to be incorporated before getting an EIN (Employer Identification Number) from the IRS.  Your unincorporated association can get an EIN.

But if you do become incorporated someday, your group will be a new legal entity and need to get a new EIN at that time.

If your group is opening a checking account under a fictitious name, then you will probably need to register that name with the state or county. In my state of  Ohio my homeschool co-op had to file a name registration with the state and give some of the officer’s names.

 

I hope that helps.

Carol Topp, CPA

Bank account for your family homeschool

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This homeschooling mother in NC ran into a problem when she tried to open a bank account for her family homeschool.

I live in North Carolina, homeschool my children and want to do some fund raising for some projects and field trips and also school supplies.

I went to the bank, wanting to open an account in the homeschool’s name and they said that I would have to open up an account in my name doing business as my homeschool’s name.

My question to you is, how do I go about paying taxes on the money? I do not want to get into trouble with the IRS. Was that the right thing for me to have done? Waiting to hear from you soon!
Kim

Dear Kim,

I’ve been asked questions like yours before. I answered them in two posts on my blog.

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

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.

Can my individual homeschool have a fundraiser?

Individual fundraisers and homeschool groups

I hope that answers your question; let me know if it doesn’t.

Carol Topp, CPA

Handling funds for big events like a senior formal

Hi Carol,
I’m the Treasurer for our local Home School Co-op and we are in the process of implementing some policy and procedures. My question is: What would be an effective policy for the handling of funds received by the various age-level activity coordinators?
Some activities are free or have a very small fee, while others are big events with tickets being sold and expenses incurred (High School Formal)..  Should there be a set amount that does not need to flow through the checking account and the coordinator be responsible for the collection of fees and the disbursement of funds, or should all monies flow through the checking account and expenses paid by the Treasurer?
Thank you,
Terri K
Terri,

Excellent question!

In general, I recommend that all activities under your co-op flow through your organization’s checking account. It might make more work for the treasurer, but it provides accountability and oversight of the program that will bear your name.

That being said, I am treasurer of a separate graduation ceremony fund for my homeschool group.  We (the parents of the graduates) set up a separate checking account just for the graduation ceremony.  I believe it was so that only the parents with graduates were funding the graduation, not the entire student body/homeschool group.  We have to stay on budget because there is no “slush fund” from the larger group to fall back on if we overspend.

There is no set amount to help you make a determination.  I would base my decision on the nature of the activity.  If it is recurring (like our graduation ceremony) then perhaps a separate account could be set up; if it is only a one-time event like a field trip, then keeping income and expenses part of the larger group’s system would make sense. Also consider the fiscal responsibility of the leaders of your separate activity.  If no one cares to handle the money in a responsible manner, then don’t let them open a separate account.

I hope that helps!

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