12 moms want to start a homeschool co-op. How to get started

Carol,

12 mommies started a homeschool co-op. We offer an educational learning class three times a month and social events (field trips). We are wanting to do things right. We are thinking of collecting dues and selling goods to have money for trips. How do we get started with registering as nonprofit, filing a 501c3, doing everything legal in my state?
Courtney

 

Courtney,

Good for you and the 12 families to help each other homeschool by forming a co-op!

Start by reading through my checklist of steps to form a nonprofit and apply for tax exempt status.

One of your first tasks will be to form a board, the 3-5 people who will lead the group and make major decisions.

My webinar Create a Nonprofit for Your Homeschool Community will offer you some great tips to form a board.

 

Then my book Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out should be a big help.

Finally one of your officers (usually the Treasurer) should read my book The IRS and Your Homeschool Organization. It explains the process to apply for 501c3 tax exempt status.

 

 

When you’re ready contact me and we can set up a phone call to see if you’re set up enough to apply for 501c3 tax exempt status!

 

Carol Topp, CPA

HomeschoolCPA.com

Helping Homeschool Leaders

Reimbursement policy for a homeschool group

We discussed during our phone call the need to require receipts from our homeschool program’s teachers before they are reimbursed. I have some board members that are concerned. They are afraid it will be seen as more trouble than it’s worth and that we will have fewer moms volunteer. Their question is whether receipts are necessary.

-BW

 

BW,

Reimbursements…yes, the paperwork and receipts are necessary, because if your homeschool organization gives a volunteer a check without getting a receipt from her, it is considered taxable income to the volunteer teacher (under what the IRS calls a “nonaccountable plan”).

But if the volunteer teacher gives you a receipt, then the money your homeschool group pays her is NOT taxable income to her.

Here’s a blog post you should share with your board: No receipts for expenses can get you in trouble!

Your homeschool program should have a reimbursement policy that is an “accountable plan” to avoid your volunteers having to report the reimbursement as income on their tax return.

To be an accountable plan by the IRS, your reimbursement plan must include all three of the following rules:

  1. The expenses must have a business connection; that is, the expenses must have been paid or incurred while performing services as an employee (or volunteer) to your organization.
  2. The volunteer or employee must adequately account for these expenses within a reasonable time (typically within 120 days). Your homeschool organization must require volunteers/employees to give you detailed information on these expenses, including date, time, place, amount, and  purpose for the expense.  Lots of homeschool groups create a reimbursement form. I offer a sample here (it’s an Excel spreadsheet so you can edit it if you like).
  3. You must require the volunteer or employee to return excess reimbursements within a reasonable and specific period of time (usually 60 days). This is applicable if you give money in advance to a volunteer. Giving and advance is not typical in homeschool groups, but a few groups have told me that they give advances to some volunteer teachers.

If all three of these requirements are not met, the plan is determined by the IRS not to be an accountable plan, and any expenses reimbursed to the employee by your homeschool program are taxable to the volunteer!

So now you can see the importance of requesting those receipts (and having an accountable plan)!

Better yet, use my sample reimbursement form (opens an Excel spreadsheet) since it collects all the information required by the IRS to have an accountable plan.

I strongly recommend that your reimbursement policy state that if no receipts are turned in, no reimbursement money will be paid to a volunteer!

 

My book Money Management in a Homeschool Organization offers tips on reimbursement plan and other aspects of managing the money in a homeschool group.

Carol Topp, CPA

HomeschoolCPA.com

 

Income and expenses are a “wash.” Do I have to record them?

I’m treasurer for a nonprofit homeschool group. Every year some of the teachers charge a lab fee and it all gets spent on lab equipment. Do we have to claim that as income or is it just a wash because it’s used for materials or experiments?

Homeschool Treasurer

 

 

Dear Homeschool Treasurer,

You should claim/record the lab fees collected in full as income to your group.

Then also record the lab or equipment expenses to clearly reflect both the income and the expense.

If you don’t record the income, because it is a “wash” (meaning the same as the expenses, so no effect on your profit or surplus), then you are guilty of both under-reporting income and under-reporting expenses.

Your board will not have an accurate picture of all the income and all the expenses.

And you’ll be lying to the IRS! This is obviously more serious if your homeschool group is a for-profit business.

I warn against mixing income and expenses in your bookkeeping in my book Money Management in a Homeschool Organization.

Please take a few minutes and record all your income and all your expenses.

Carol Topp, CPA

HomeschoolCPA.com

Helping Homeschool Leaders

The IRS is on the prowl in 2019!

Every year the IRS Tax Exempt division releases a list of areas and issues they plan to focus on for audits and investigations. The IRS Tax Exempt division calls it their Program Letter. The Exempt Division is the branch of the IRS that grants 501c tax exempt status to nonprofit organizations.

The Charity Law blog discussed the IRS Tax Exempt work plan for 2019.

 

I found the list of things the IRS considers “the highest known priority and emerging risks” to be interesting, especially these two issues that affect homeschool programs, both nonprofit and for-profit:

  • Previous for-profit: focus on organizations formerly operated as for-profit entities prior to their conversion to IRC Section 501(c)(3) organizations.
  • Worker classification (misclassified workers): determine whether misclassified workers result in incorrectly treating employees as independent contractors.

 

So if you are converting a for-profit homeschool business to a nonprofit organization, be prepared for some extra questioning and scrutiny from the IRS. You’ll have to file the longer Form 1023 to apply for 501c3 tax exempt status and explain in your Narrative why you are converting to nonprofit status. You will not be eligible for using the shorter IRS Form 1023-EZ.

 

My book, The IRS and Your Homeschool Organization  explains how to apply for 501c3 tax exempt status.

 

 

 

 

 

Additionally, if you are treating your homeschool program teachers or tutors as Independent Contractors, be prepared for the IRS to keep an eye on you and they may open an investigation into your worker classification.

 

 

My book Paying Workers in a Homeschool Organization will be a big help to you in paying workers.

 

 

 

Additionally, the IRS is hiring approximately 40 new revenue agents to process determination applications. Is that good news? More IRS revenue agents should mean both faster processing and increased audits and investigations! Both good and bad, in my opinion.

Carol Topp, CPA

HomeschoolCPA.com

 

Is your homeschool program a ministry or a business?

Sometimes I hear people calling their business a “ministry.”

Maybe because they are motivated by concern and care for their customers or because they donate a lot of their time for free.

I don’t refer to my accounting and consulting business as a ministry, but some people have thanked me for “my ministry” to homeschoolers.

Yes, I do give a lot of my time away for free especially on social media like this Facebook group for homeschool leaders that I moderate and frequently I might reply to an email without charging a fee (if it is a short reply!)

But I am running a business and I don’t want to give the false impression that I am running a ministry or operating a nonprofit organization.

OK, not a lot of accounting firms get confused with nonprofits (!), but there are some businesses and homeschool programs that present themselves as nonprofit organizations or “ministries” but they are really for-profit businesses.

I don’t like that. At best, it is confusing to call your business a ministry. At worst, it is deceptive and can damage the reputation of homeschooling.

 

I have tremendous respect for the late Larry Burkett founder of Christian Financial Concepts (now Crown Financial Ministries) who was both a business owner and operated a nonprofit ministry. He wrote:

Don’t practice deception. If you have a product to sell that you honestly believe will benefit other Christians, let it be known, but don’t promote it as a ministry or as a spiritual happening.

Let your yes be yes and your no be no. In other words, let people know what the company is and what the product is.

If there is a referral or finder’s fee paid to another person for a lead, let that be known too.

If you’re afraid of losing a sale because of total honesty, the program is dishonest.

Source: Larry Burkett in Using Your Money Wisely p. 76 and 77 copyright 1985. You can read a longer excerpt here.

 

I have heard from several nonprofit homeschool organizations that say churches in their local communities got “burned” by for-profit homeschool groups posing as “ministries.” Read this blog post to understand why churches are reluctant to host for-profit businesses.

Now these legitimate nonprofit homeschool groups have difficulty getting a church to host their program.

Being deceptive hurts everyone.

We’re better than that!

 

Carol Topp, CPA

HomeschoolCPA.com

Helping homeschool leaders

Are my homeschool co-op fees a tax deductible donation?

I’m a homeschool parent and member of a homeschool co-operative that weeks weekly. I have to pay tuition to this group for the classes my children take there. Can my children’s tuition for the co-op be a tax deduction?

 

I assume you mean deductible as a charitable donation.

Co-op fees are not a tax deductible charitable donation because services (co-op classes for your children) were received in return for the tuition payments. Tuition payments are not a tax deductible donations.They are personal expenses and are not tax deductible.

But if a parent makes a charitable gift to the homeschool group (assuming it has 501c3 tax exempt status from the IRS) above and beyond the tuition and fee payments, then this amount would be a tax deductible donation.

Some homeschool parents ask if co-op fees can be deducted as childcare expenses. My reply is “usually not” and here are the details: Are homeschool co-op fees child care tax deductions?

 


Did you get paid for teaching at a homeschool program? You may have questions about your taxes? I offer webinar to help you understand the tax implications of being a paid homeschool co-op teacher or tutor:

I recorded a webinar on Tax Preparation for Homeschool Business Owners. It should be a lot of help to tutors, non-employee co-op teachers and other homeschool business owners! You can watch the recording at HomeschoolCPA.com/HSBIZTAXES for a small fee of $10.

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


I hope that helps!

Carol Topp, CPA

HomeschoolCPA.com

Helping homeschool leaders

13 benefits of homeschool co-ops

This is a throwback to 2009 when first posted and is still a great list of benefits to homeschool co-ops!

Heart of the Matter had a great article written by Katie Kubesh on the benefits of homeschooling with co-ops.  She surveyed several co-ops members and here is what they received by being in a homeschool co-op:

  1. Kids enjoy the variety of resources and materials provided
  2. Parents do not have to do as much research and footwork on their own; they are able to share with other co-op parents
  3. Co-ops gives homeschooling families the opportunity to bond with other families in their city or state
  4. Co-ops keep homeschooling families on schedule
  5. Co-ops keep homeschooling families accountable for their studies
  6. The extracurricular activities are fun for both the parents and kids, including football games, craft parties, theme parties, field trips, etc.
  7. People who belong to co-ops sponsored by their church appreciate the opportunity to share their faith and bond with other parish families and the pastors, who sometimes participate also
  8. Co-ops that offer classes or unit studies give students the opportunity to learn a broader range of topics and/or to learn a subject their own parents may not be comfortable teaching, for example higher level mathematics, music, or foreign languages
  9. Students are exposed to different types of teachers
  10. Students are held accountable by someone other than their parents
  11. Parents provide each other with support and encouragement
  12. Students have the opportunity to interact with kids of all ages, not just their grade or age level
  13. People who belong to co-ops have a wide selection of experiences. Some belong to large co-ops that include over 200 families. Larger co-ops are able to teach many classes (one offers 80 different classes from preschool through high school with subjects ranging from science, math, history, art, music, foreign languages, drama, and public speaking) and sponsor many field trips and other activities. Some larger co-ops even offer courses that students earn college credits for.

Isn’t that a great list?  I especially like # 9, 10 & 11  because those are the main benefits I received from my homeschool co-op.

Katie goes on to explain the benefits or large and small co-ops.  Sometimes small co-ops grow into large co-ops and the leaders find themselves managing larger groups of people, in a larger space and handling more money.

My book Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out can also help a homeschool co-op leader run a successful co-op, whether small, medium or large, without burning out!

Carol Topp, CPA

California homeschool leaders: A webinar just for you!

For California homeschool leaders: I have something special for you!
A free webinar
on

Money Tips and Traps for Homeschool Organizations

Monday December 3, 2018 at 6:30 pm California time

and
Carol Topp, CPA, the HomeschoolCPA

 

The webinar is for all homeschool leaders of co-ops, support groups, CC Communities, sports, music, clubs, etc! Whether your group is large or small, new or mature, you can learn something new or improve on what you are currently doing!
The webinar will cover:
  • Tips for managing the money in your homeschool group
  • Board duties (what leaders should be doing!) concerning money
  • What financial reports California requires
  • What reports you should be filing with the IRS
  • Money traps to avoid
  • Taxes and tax exempt status
  • Paying workers
  • Avoiding errors and embezzlement

There will also be time for your questions and answers!

The webinar will be held  Monday December 3, 2018 at 6:30 pm California time
You can join my phone, PC, Mac, iphone, iPad, etc. from wherever you are!

 

The webinar is free, but you must register to be emailed the link.

 

In addition the webinar will be recorded, so be sure to register so you get the recording link emailed to you!
If you can’t attend the live webinar, still register, so you will be sent the link to view the webinar later.

 

I hope you can join me on Monday December 3, 2018  at 6:30 pm PT
Thanks to CHEA for hosing and helping put on his webinar for homeschool leaders!

 

Register today even if you can’t join us live so you will get the link to the recording.

 

Carol Topp, CPA
HomeschoolCPA.com

How should a homeschool co-op set up their Quickbooks account?

Do you have something on your website or a resource on how a co-op should set up their QuickBooks accounts?

Michelle

 

Michelle,

I have a few posts about how to set up QuickBooks for a homeschool co-op:

Quickbooks Tips for Homeschool Groups on Sales
What financial reports do we need to generate monthly?

If you receive money in one year, but it’s really for next year (like early registration) then this is helpful:
Deferred Revenues in QuickBooks (opens a pdf file)

 

I actually don’t spend a lot of time talking about QuickBooks on this blog because there are so many good resources our there like this one (check out her QuickBooks tutorials):

5MinuteBookkeeping

A nonprofit called TechSoup has some great videos for using QuickBooks in a nonprofit:

https://www.youtube.com/playlist?list=PLRCtupIatuLkSlhtlXDyo7P7woeHORwgn

Finally, my book Money Management in a Homeschool Organization  has some tips for using QuickBooks like setting up a Chart of Accounts and a who are your “Customers” and what are your “Sales.”
I hope that helps,
Carol Topp, CPA

Should your homeschool group be collecting sales tax?

Sales tax. Ugh!! As if dealing with the IRS and income tax isn’t enough of a headache, your homeschool organization might need to be collecting and paying sales tax as well!

From the Church Law and Tax blog comes some helpful information about sales tax that applies to homeschool organizations.

Sales taxes are collected in 44 states. Each state has a different sales tax statute and exempts certain types of purchasers from the payment of sales tax.

Some states exempt any organization with 501(c)(3) status from paying sales tax on purchases. Other states offer limited sales tax exemptions.

Collecting Sales Tax

But I’m not talking about paying sales tax when you buy stuff like paper towels or microscopes.

I’m talking about when your homeschool group sells stuff (aka tangible personal property).

What kind of stuff? How about:

  • Text books (some states exempt textbooks form sales tax.)
  • Tickets to drama performances (yes, some states add sales tax to ticket sales!!)
  • Food sales (in some states food sales, especially snack foods and soft drinks are sales-taxable)
  • T shirts, even if they are a fundraiser!

The rules for when an organization is exempt from collecting sales tax are different form the rules about paying sales tax.

Most states do not exempt churches from collecting sales tax on taxable transactions. As a result, a church that conducts taxable transactions is required to have a sales tax permit.

Most states have a nuisance exception to the requirement of having a sales tax permit, which allows churches to have taxable sales a couple of days a year without the requirement of collecting sales tax. Since every state is different, you should check with your state revenue department. (Source: https://www.churchlawandtax.com/web/2008/september/exceptions-to-exemption.html)

 

For example: In Ohio a homeschool co-op with 501(c)(3) tax exempt status can buy things (like books, supplies, etc) without paying sales tax.

But Ohio only allows nonprofits 5 days a year to hold sales without collecting sales tax. It’s kind of like they are saying, “use those 5 days wisely…you only get 5 sales-tax free days to sell stuff each year!” So maybe the co-op wants to have a big fundraising event and sell items. That’s one of the 5 days they can sell items and not have to collect sales tax.

 

Sales Tax on Fundraiser Sales

You may be thinking your homeschool group can avoid collecting sales tax because you only sell things as part of a fundraiser. Sorry, bed news…

Virtually any form of fundraiser that involves the sale of a product will also require the collection of sales tax. (Source: https://www.churchlawandtax.com/web/2008/september/exceptions-to-exemption.html)

Sales Tax Laws vary by State

Each state has different rules about how and what they apply sales tax to and what organizations can be exempt from collecting sales tax.

It will take some detective work to figure out what your state’s rules are! It’s one of the headaches of living in a country with 50 states (and Washington DC!).

How to Get Help

  • Start with your state’s department of revenue website. Look for words like “sales tax” and then “exemptions” Then look for words like “nonprofit” and “exemption.” Happy reading. The states don’t make it easy to find the exceptions to taxes!
  • Google “Sales tax exemption nonprofit YOUR STATE” and start hunting.
  • I find TaxJar.com and Avalara.com are two helpful websites with information on sales tax.
  • Contact me, Carol Topp, CPA. I’ve done the detective work for several states (about 30) and can sometimes help you or at least point you in the right direction. I charge a fee for this research of $50.

Carol Topp, CPA

HomeschoolCPA.com