Should my homeschool group tithe?

If we want to tithe on our income (from registration fees and donations) are there any restrictions, red tape, or regulations we should know about? Do you have advice or thoughts on tithing by a 501(c)(3) tax exempt organization?

Homeschool leader in Idaho

 

The only restrictions is that the purpose of recipient of your tithe must be in line with your exempt purposes (charitable, educational and religious for this particular group).

So you shouldn’t give any part of your tithe to a for-profit business or to a nonprofit whose mission is outside of your purpose as you indicated to the IRS when you applied for 501(c)(3) tax exempt status (say an animal shelter).

Most 501(c)(3)s do not tithe because they consider themselves as recipients or stewards of donations for their specific mission. But some organizations do tithe. My church, for example, budgets 13% of our income to missions. We consider that part of a tithe.

From a Biblical perspective, it’s unclear if nonprofits should tithe.

Here’s a blog post from a pro-life group LifeMatters Worldwide with food for thought:

Should your ministry give a portion of your budget to the Lord’s work? That sounds good, but isn’t 100 percent of your budget already dedicated to advancing the Kingdom to your particular target audience? If you believe that a nonprofit organization should give because God will bless you in a special way, why stop at 10 percent?

Your board should discuss these questions:

  • If you choose to tithe, where would you direct the funds?
  • Would you give to a church? That could be problematic.
  • Would you only give to other similar agencies? Donors who give to your nonprofit expect that 100 percent of their gift will be used to support your mission.
  • What if you choose an organization that your donors don’t believe in?
  • Would they quit supporting you if they knew that a portion of their gift ultimately supported another organization that they don’t like? Their reason for not liking the other organization doesn’t have to be doctrinal or philosophical. Maybe they don’t like the director, or maybe they simply aren’t interested in that particular cause.

The blog post writer concludes with this:

When a nonprofit decides to give to other nonprofits, in a sense they become mutual fund managers. You are deciding for your donors how to spend a portion of their gift that is not directly connected to your ministry. As a donor, I’m writing a check because I want to support the impact your organization is making. If I wanted to support the organization that you choose for me, I would give to them directly.

The biblical instructions about tithing and giving primarily apply to individuals. Business owners may choose to tithe their income, but a nonprofit ministry should not view giving from the same perspective.

There is one critical difference — nonprofit organizations don’t earn income, you are merely stewards of the gifts someone has entrusted to your care to accomplish your mission. When you look at nonprofit tithing from a donor’s perspective, it doesn’t make sense to give something away that isn’t really yours.

I think that will give your board something to discuss!

Carol Topp, CPA

 

Carol’s book Money Management in a Homeschool Organization  will help your homeschool organization create a budget and live by it!

 

Tax deductible donations without IRS determination letter

We have an EIN and file 990-N annually but fall under the classification of a group self declares our tax exempt status because we make less than $5,000 a year. We have not gone through the formal 501(c)(3) application process with the IRS. I was talking with IRS today and I believe I understood them to say we cannot give a form to a donor stating their contribution is tax deductible.

If that is the case how can we assure potential donors we are tax deductible and doesn’t a donor need documentation for when they file their taxes?

Mark

 

Mark,

One of the major drawbacks for small 501(c)(3) organizations who chose to “self-declare” their tax exempt status is that they lack the official IRS determination letter proving that donations are tax deductible (See the photo above for an example of the IRS determination letter).

This important letter can give donors assurance that their donations are indeed tax deductible.

Technically, your organization can still receive tax deductible donations, but your organization lacks “proof” to show a donor.

A donor must keep a record if the donation is more than $250. This record is usually a letter from the charity, but a bank record (a cancelled check) may suffice. This record is only given to the IRS if the donor is being audited by the IRS.

Your homeschool group may be listed in the IRS database of Exempt Organizations since you have been filing your  Form 990-Ns every year. Visit IRS Select Check and see if your can find your organization listed as “Has filed Form 990-N” or “Are eligible to receive tax-deductible charitable contributions.” If you are in the IRS database you can be assured that you can accept tax deductible contributions.

The best way to assure potential donors would be to file the Form 1023-EZ (fee $275 to the IRS and takes about 3-4 weeks). Then you get the official IRS determination letter.

I can assist you in filing the Form 1023-EZ. While it is a much simpler form than the full Form 1023, it can be confusing and you will want to be sure it is filed correctly.

Email me if you’d like my help.
Carol Topp, CPA

Simplify your homeschool group fees (please!)

Carol,

Our all volunteer homeschool co-op charges fees for several things:

  • A $20/family registration fee.
  • A $12/family fee to pay a cleaning crew for cleaning.
  • The building usage fee is $40/student/school year.
  • A $4 PayPal fee per transaction.

Then some of the class teachers charge a supply fee or require the parents to purchase books, etc.
Is there a way to simply these fees?
Emily

 

Emily,

I’ve seen lots of homeschool groups with complicated fee structures. There are separate fees for the facility, the supplies, the insurance, the website, etc. The list of fees on the parents invoice is 5-6 separate lines!

Something like this is invoice overkill!

You don’t need to be this complicated with all the separate fees!

Most preschools, private schools, colleges,  etc. include all their fees into one tuition fee charged to parents. (Okay, I  know that colleges love to charge lots of fees for supplies, etc. and then can claim they are not increasing tuition!)  The school adds up all the expenses to operate their program and charge the parents enough to cover those expenses (that’s why a budget is so important). They lump everything into one bill to the parents called “tuition.”

Instead, just lump it all the fees into one fee, call it student fees or “tuition,” if you like. The parents do not need to see all the details of what goes into running the organization; that’s what the board does. The budget is the place to list the expenses and see if the tuition charged is enough to cover all the expenses.

Simpler invoice to send to parents. All fees lumped together.

P.S. About the Paypal fee you’ve been charging…Paypal forbids you tacking on an extra charge to cover their fee. It’s in the User Agreement your organization agreed to when you signed up for a Paypal account. It says, “You agree that you will not impose a surcharge or any other fee for accepting PayPal as a payment method.” So just roll that fee into your total fee charged to parents.

Why You Can’t Charge Clients Paypal Fees + What to Do About It.

Carol Topp, CPA
HomeschoolCPA.com
Helping homeschool leaders

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Can my landlord get a tax deduction for the free rent he gives us?

I have a few questions for you about a tax deduction for our “landlord.” We just received 501(c)(3) tax exempt status form the IRS. Does this mean that our landlord can claim a deduction the reduced rent she gave us?  RW

 

Dear RW,

Donations of cash or physical goods to your organization are tax deductible charitable donations.  But donations of services or use of leased property is not a tax deduction.

If your landlord gave your homeschool organization free or reduced rent, that is not a tax deductible donation for the landlord. Sorry.

Here are some articles that explain the IRS rules on donating leased space.
Can landlords take a tax-deduction for the donation of leased space?

When a property owner transfers title to a charity of all or part of real property, the owner can generally take a tax deduction for the gift.  However, offering a charity leased space for free or at a reduced rate is a not a gift of an ownership interest and is not considered deductible by the IRS.

Landlords do a good deed by donating leased space to a charity but they are not permitted to receive a tax benefit for their action.

Tax treatment of the provision of rent free

For this reason, donations of services or loans of property to a charity do not qualify as gifts because they do not transfer a property interest to the charity. They simply allow the charity to use the property of the donor, or to benefit from the donor’s services, free of charge.

Here’s the official word from the IRS from Revenue Ruling 70-477.

“a contribution, made after July 31, 1969, to a charitable organization of the right to use property is treated as a contribution of less than the entire interest in the property and does not give rise to a deduction.”

In other words, if someone donates a building (i.e. “the entire interest in the property” ) to a charity, it is a tax deductible donation. But if the contribution is the right to use the property, then there is no tax deductible donation.

Carol Topp, CPA

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Accepting contributions for a needy family

Hi Carol,
We just suddenly lost a dad from our homeschool co-op.  He leaves a wife and 6 children.  We have been receiving donations for them left and right through PayPal.  We will also start receiving checks from various people and churches.
As a 501c3 organization, what is our responsibility with donation letters and such?  For PayPal payments, I’ve been forwarding the receipt to the donor, thanking them for their donation and reminding them to hold on to their PayPal receipt for tax purposes as we are a 501c3 and their donation is tax deductible.
MG in NJ

So sorry for the loss of one of your fathers. How horribly sad.

What are you doing with these contributions? Are you passing them along to the family who lost their father/husband? I imagine that you are and that is very kind of you, but then these are not tax deductible donations. These contributions are gifts to the family (funneled through your co-op). Gifts to an individual family are NOT tax deductible donations to the donor.

The IRS rules for tax deductible donations are quite clear: contributions earmarked for a certain individual (or family) including those that are needy or worthy are not deductible.

IRS Publication 526

Contributions to Individuals

You can’t deduct contributions to specific individuals, including the following.

Contributions to individuals who are needy or worthy. You can’t deduct these contributions even if you make them to a qualified organization for the benefit of a specific person. But you can deduct a contribution to a qualified organization that helps needy or worthy individuals if you don’t indicate that your contribution is for a specific person.

The reason the donors funneled these gifts through your homeschool organization is that they want a tax deductible receipt, but you should not give the donors a tax deductible receipt for these gifts that are designated to go to the specific family.

My advice at this point is to thank people for their contributions, but do not give out tax deductible receipts. Some nonprofit experts advise that you tell the donors that their gift is not a tax-deductible contribution.

 

P.S. You might want to contact The Homeschool Foundation, a benevolent fund established by Home School Legal Defense Association (HSLDA). They have a fund just for widows to help purchase curriculum.

Carol Topp, CPA
HomeschoolCPA.com

Accepting in-kind donations of equipment or services

Carol,

My homeschool group (a 501c3 nonprofit) was donated $500 in science equipment. How to I record a gift like this in my record keeping? We use QuickBooks.

 

How wonderful to receive such a generous donation. As a 501(c)(3) tax exempt organization the donation is a tax deductible contribution for your donor.

Thank the donor

First, be sure to thank the donor with a nice letter. State what the donation was (science equipment) but not the dollar amount. Only state the dollar amount when the gift is cash.

And be sure to include this note: “No goods or services were provided in exchange for this donation.”

Understand in-kind donations

A contribution that is paid or given in goods, commodities, or services instead of cash is called an “In-kind” contribution.

Free Church Accounting offers some great information on accepting and recording in-kind donations for small nonprofits like homeschool groups.

There are typically three categories of in-kind donations. They are

  • contributions of tangible and intangible goods
  • use of property
  • donations of services

Tangible gifts in-kind (physical goods that can be touched or held) include: furniture, equipment, food, clothing, supplies.

Example: The donation of science equipment is a tangible in-kind contribution.

Intangible gifts in-kind (goods have value but do not have a physical presence) include: trademarks, copyrights, patents, royalties, advertising.

Example: If a member of your homeschool group lets you print copies of her book or curriculum at no cost she has granted you an in-kind contribution of her copyright.

Use of property include free leased space and discounted rent.

Example: A church lets your homeschool co-op use their building for free.

Professional services given as gifts in-kind include services of accountants and bookkeepers, lawyers, plumbers or electricians, computer programmer, designers, technical support, etc.

Example: One of your members is an attorney and created bylaws for your organization.

Recording donations of in-kind contributions

Some small homeschool organizations don’t record in-kind contributions at all because they do not have to report financial statement to the IRS (they file the Form 990-N) or don’t use accounting software.

But if you would like to record your in-kind contributions in your accounting software here are a few examples from Free Church Accounting

An accountant donates 5 hours a month to do some accounting work that your organization would have had to pay another accountant to do. She regularly charges $100 per hour to do a similar service. To record this gift in-kind you would:

  • Debit Professional Service In-Kind $500
  • Credit In-Kind Contributions $500

Important reminder: Thank your donor for their services, but do not give them a tax deductible receipt for the value of their services. Donors cannot take a deduction for the time that they donated. Only donations of cash, tangible and intangible goods are tax deductible, not the value of services.


A business donates a portable building valued at $12,000. Assuming that your organization has a policy to capitalize assets of this value (meaning you depreciate the value over several years), you would record this gift in-kind like this:

  • Debit the fixed asset account (Portable Building In-Kind) $12,000
  • Credit the In-Kind Contributions $12,000

A person donates an computer valued at $400. Assuming that your organization has a policy to expense assets of this value (meaning you do not depreciate it; you deduct the full amount as an expense in one year), you would:

  • Debit the Equipment In-Kind (expense account) $400
  • Credit the In-Kind Contributions $400

 

Have more questions about properly recording your income, expenses and contributions? My book Money Management in a Homeschool Organization can help.

Or contact me to get help with your accounting set up and transactions. I can refer you to a cadre of homeschool parents with experience in bookkeeping.

Carol Topp, CPA

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Are you asking for donations on your website?

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Does your homeschool group accept donations on your website? Lots of nonprofits do and its a handy way for donors to send a donation.

But did you know that having a donation button on your website could mean that your organization would need to register as a charity in almost all 50 states? What a load of paperwork!

Harbor Compliance explains that, fortunately, many states follow the Charleston Principles for accepting donations on a website.

Generally, the Charleston Principles assert that registration (with each state) should only be required if:

  • non-internet activities alone suffice to require registration, or
  • the nonprofit solicits contributions through its interactive website or specifically invites further offline activity to complete a contribution, and either:
    1. Specifically targets persons physically located in the state, or
    2. Receives repeated or substantial contributions. (“Repeated” and “substantial” are left up to each state to define.)

The principles leave a lot of room for interpretation, which brings us to some practical state-specific pointers.

Top 5 Tips When Soliciting Donations Online:

As you prepare to solicit donations online:

  1. Always register in your state of incorporation.
  2. Following-up with fundraising contacts residing in unregistered states may trigger registration. For example, you receive an unsolicited and insubstantial contribution through your website from a resident of a state in which you are not registered. If you then solicit that contact via e-mail, phone, mail, or any other medium, that will be treated as solicitation triggering registration. E-mail is generally treated the same as a mail or in-person solicitation.
  3. Soliciting through a charity portal alone such as www1.networkforgood.com does not trigger registration. That is because it is a donor-advised fund that exists to distribute funds to other nonprofits. Technically the donation is given to the fund as the payee. Scrutinize any website before assuming it is a donor-advised fund; their fine print may pass the burden of charitable registration on to you.
  4. Your nonprofit may consider hosting a non-interactive websites that encourage donations through third-party sites or offline means. This may still trigger registration – it is not a loophole.
  5. You can use social media to send out information about your nonprofit’s activities without needing to register. When your language invites solicitation, you do need to register. A fan promoting donation independent of the nonprofit does not trigger registration.

Thanks to Harbor Compliance for this helpful information.

My source: https://www.harborcompliance.com/information/online-fundraising-charleston-principles

Carol Topp, CPA

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Homeschool co-op gives “scholarships.” What are the tax liabilities?

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I am curious how a scholarship for a family works in terms of tax liability in an all volunteer co-op with no payment to teachers, board members, etc. Each family pays a membership fee which covers expenses for family events, insurance, state filing fees, etc.

For example, family A donates the amount of a family membership to the organization. The board notices that Family B is out of work and therefore credits the amount paid by Family A to Family B’s registration fees. Family B still pays things like class fees, but the annual registration was not paid by Family B.

What duty does the co-op have in terms of tax liability for itself and are there any potential pitfalls to be aware of?
Marisa

Marisa,

Your organization does not have to give the recipient of a benevolent gift any documentation. Some homeschool organization call this gift a tuition discount or a “scholarship.”  Read here why I don’t like the word scholarship when you are really giving a needy family a tuition discount.

The donor can be given a receipt for their donation. Taxpayers must have a receipt if the donation is more than $250, so frequently charitable organizations give every donor a receipt (an email is OK). Be sure to include the statement that “No goods or services were received in exchange for this contribution.”

The IRS requires 501c3 organizations filing a Form 990 with a total of more than $5,000/year in grants or assistance to individuals to keep a record of the amounts and purpose of the grants. These records are submitted to the IRS on Form 990 Schedule I. These records are not reported to the IRS if your organization files a 990-EZ or 990-N. In other words, only large charities (more than $200,000 in annual revenues) report information on the grants to individuals. The names of the individuals are not given to the IRS, just the amount and purpose of the assistance.

IRS Publication 4221PC has guidelines to follow regarding charitable gifts and record keeping.
It’s kind of a dry publication, but very important. The IRS used to mail Pub 4221 with your letter approving 501c3 status, but stopped doing that several years ago to save printing costs. It’s such an important publication that I recommend treasurers read it regularly, maybe once a year. Find it online here: https://www.irs.gov/pub/irs-pdf/p4221pc.pdf

Hope that helps,

Carol Topp, CPA

Homeschool leader collecting donations without tax exempt status.

PCmakesmoney

Our homeschool group leader just opened a Paypal account and has begun asking for donations. This seems a little weird and as though we need to be a nonprofit if money is collected from members. I referred her to your website, but she believes we have nothing to worry about. Is this true? Should we be a nonprofit if money is involved? How can I help her understand the ramifications of not using your resources?
Randi

Randi,

Thank you for contacting me.

Oh dear, your leader thinks she has nothing to worry about! It’s just not that way anymore!

Whenever an organization collects money from either member dues or donations, the leaders have a fiduciary responsibility for managing that money properly. If they do not manage the money properly or get organized properly with the IRS, the leaders can be held personally liable for any mistakes.

This blog posts explains the fiduciary responsibility of leaders: http://homeschoolcpa.com/what-are-the-legal-responsibilities-of-homeschool-leaders/

An organization cannot accept tax deductible donations unless they have 501(c)(3) tax exempt status from the IRS. Most homeschool groups collect membership dues, but those are not “donations” and they should not be called donations.

How can you help your leader be more responsible? Explain that if your group is not properly organized then the money she is accepting will be seen as her taxable income by the IRS and she will have to pay taxes on it!

To get properly organized start by reading a few of my blog posts and articles.

This quick video may help as well: https://youtu.be/FLvfw23z7M0

Good Luck!

Carol Topp, CPA
HomeschoolCPA.com

Giving receipts for donations to a homeschool group

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Do we need to offer a written letter or some sort of receipt for donations to our organization?
If we are hosting a parent event and door prizes have been donated, how is that handled?
Do we need for the donor to give us a receipt or some sort of written statement stating the value of an item that has been donated?
Is there a particular format or template for receipts given to donors?
Thanks so much!
Darlene
Darlene,

Yes, you should give a receipt for donations. The IRS Publication 4221-PC p. 26 explains it all. Be sure to include a note about “No goods or services were given in exchange for this donation.”The value of donated goods is determined by the donor, not your organization as the charity. You can give a thank you letter to the donor and fill in a description of the item donated, but not its value.

Sort of like Goodwill does when you drop off stuff. They have a stack of cards at the drop off counter. Goodwill fills in the date, but the value of the donation is filled in by the donor.
No, there are no official donation receipt forms.
Just follow the example of Goodwill or your church.
Carol Topp, CPA