Recording of Business Failure in the Homeschool Marketplace webinar

Yesterday I presented a webinar “Business Failure in the Homeschool Market that many of you (about 90!) attended.

 

Here’s the link to download the recording of the webinar.
The webinar lasted 2 hours because of all the questions asked, so it may take a few minutes to download.

 

Here’s a handout of the information I discussed.

 

We talked about
  • What triggers an IRS audit into worker classification
  • Factors to determine independent contractors or employee status
  • Consequences of misclassification and IRS programs to avoid penalties
  • What options are there for a homeschool co-op or academy
  • Are homeschool tutors or teachers at risk

I referenced my book Paying Workers in a Homeschool Organization which may be helpful to many of you.

 I also mentioned that I offer a Worker Classification determination service if you need help determining if your workers are independent contractors or employees.

I’m happy to help and relieve any anxiety you have about this confusing topic.

Carol Topp, CPA

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What are the consequences of misclassifying a worker?

In the news and social media recently has been the sad story about a popular service offering classes for homeschool students having to close. In late December 2016, Landry Academy announced “It is with much sadness that we close the doors of Landry Academy.”

I do not know the details of their unfortunate situation, but it seems that there was an IRS requirement for Landry Academy to reclassify their teachers as employees, rather than independent contractors.

You may be wondering: What are the consequences of misclassifying workers?

Here’s what I tell business owners, nonprofit leaders, and anyone else hiring workers:

IRS Penalties

Under Internal Revenue Code section 3509 the penalties for worker misclassification include:

  • Paying a portion of federal income tax (1.5% of payroll),
  • Employer (100%) and employee (20%) shares of FICA taxes
  • Federal unemployment compensation taxes (FUTA).
  • In addition penalties for missed deposits (10%) and withholdings (20%) can be assessed.

Additional penalties include:

  • $50 for each Form W-2 that the employer failed to file because of classifying workers as an independent contractor.
  • A Failure to Pay Taxes penalty equal to 0.5% of the unpaid tax liability for each month up to 25% of the total tax liability.

Other Penalties

That’s pretty bad when you ad it all up, but the list of consequences goes on to include:

  • Penalties for failure to file state and local income tax withholding
  • Penalties due to unemployment insurance shortfalls
  • Worker’s compensation violations
  • Improper exclusion from benefit plans such as pension, retirement plans, health insurance, paid leave, severance pay, etc.

Here’s a long list of The Consequences of Misclassifying Your 1099 Contractors

Scared yet? You probably should be.

Worker misclassification is a serious issue and can cause significant financial hardship and has caused several businesses to close.

Here’s help

My book Paying Workers in a Homeschool Organization can help clear a lot of confusion, but perhaps you want to discuss your particular situation in a private, individual phone consultation.

I offer phone consultations to help you determine if your homeschool organization’s workers are employees or independent contractors. The phone call will be followed up with an email containing a fact-based determination and information to help you take the next steps.

To request a consultation, please contact me. I’m happy to help and relieve any anxiety you have about this confusing topic.

Carol Topp, CPA

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Webinar on business failure in the homeschool market

I am always saddened to hear about business failure in the homeschool market. I feel pain for the business owner, their employees and their customers.

  • How can this happen?
  • Can it be avoided?
  • What can a customer do if they have lost a lot of money?
  • What lessons can a homeschool business or homeschool co-op learn from others’ failures?
  • Are homeschool teachers and tutors at risk?

I’m going to answer all these questions and more during a live webinar hosted by Tammy Moore of Virtual Homeschool Group 

Webinar: Business Failures in the Homeschool Marketplace

 

Date: Saturday January 14, 2017

Time: 2:00 pm ET, 1:00 pm CT, 12 noon MT and 11:00 am PT. The webinar will last about 60 minutes.

Cost: Free

Topics:

  • For parents: How can parents avoid losing money?
  • For homeschool businesses and nonprofits: Could it happen to us?
  •  IRS audits, penalties and safe harbor provisions
  • Worker Classification: General guidelines and possible solutions
  • For homeschool teachers and tutors: Are you at risk?

Join the webinar  here

You’ll need to download the webinar application on your computer or mobile device before the webinar begins.

or phone in on Saturday January 14 at 2 pm ET/1 pm CT (only audio)

Call-in number: 571-392-7703

Participant PIN: 375 427 129 85

 

Here’s a handout I created.

I hope many of you will join me on Saturday January 14, 2017 to discuss this very important and timely issue.

Carol Topp, CPA

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Top 10 blog posts of 2016

 

Here is a round up of the top 10 most important blog posts from HomeschoolCPA in 2016.

 

Many of them have to do with paying workers in a homeschool organization, probably because I was asked a lot of questions about paying volunteers, giving discounts in stead of paying teachers and the difference between employees and independent contractors.

I also spent a lot of time in 2016 researching and writing Paying Workers in a Homeschool Organization and my blog posts reflect what I was learning.

Compensation to homeschool board members is taxable income

Paying Workers in a Homeschool Organization updated book is ready!

Are homeschool co-op tuition discounts taxable income? Probably!

Can you discount a homeschool co-op class in lieu of paying the teacher?

How you pay your homeschool teachers could affect the property tax exemption for your host church

Can a homeschool group just get together without having to report to the IRS?

Adding religious purpose to bylaws and Articles

Use Quickbooks online for free

Are discounts to homeschool board members taxable compensation?

How the IRS defines a school

I wonder what 2017 will bring in the world of homeschool organizations!

Sign up for my email list to be kept up to date on the questions homeschool leaders are asking.

P.S. Subscribers to my email list get freebies, discounts and special reports I share only with them.

Carol Topp, CPA
HomeschoolCPA.com

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Paying Workers in a Homeschool Organization updated book is ready!

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Some people compare writing a book to giving birth. I can understand that! Please welcome my 12th “child.” This has been quite a labor!

This latest book book, Paying Workers in a Homeschool Organization, is a major update to the 20 page ebook I released in 2009. Homeschooling has changed a lot in the past 7 years and homeschool leaders are asking a lot of questions about paying workers. The book grew from 20 to 130 pages!

Table of Contents

Chapter 1: Can You Pay a Volunteer?
Chapter 2: Paying Board Members and Other Leaders
Chapter 3: Employee or Independent Contractor? Worker Classification
Chapter 4: Guidelines for Hiring Independent Contractors
Chapter 5: Tax Forms for Independent Contractors
Chapter 6: Payroll Taxes for Employers
Chapter 7: Tax Forms for Employers
Chapter 8: Sample Independent Contractor Agreements
Chapter 9: Resources

Paying Workers in a Homeschool Organization,-2nd edition

$9.95 paperback
130 pages
Copyright 2017
ISBN 978-0-9909579-3-5

BuyPaperbackButton

 

The ebook version will available soon!

I hope you find the book helpful.

If it still leaves you with questions about your particular situation, I do offer a worker classification consultation. It is private, specific and will give you peace of mind.

Carol Topp, CPA

 

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What’s inside the new Paying Workers in a Homeschool Organization book?

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I’ve updated my book Paying Workers in a Homeschool Organization

It’s got a new cover. It’s grown from 20 to 130 pages, has an index, and a a bunch of sample agreements you can use with your independent contractors.
Here’s what you’ll find inside:

 

Table of Contents

Chapter 1: Can You Pay a Volunteer?

Chapter 2: Paying Board Members and Other Leaders

Chapter 3: Employee or Independent Contractor? Worker Classification

Chapter 4: Guidelines for Hiring Independent Contractors

Chapter 5: Tax Forms for Independent Contractors

Chapter 6: Payroll Taxes for Employers

Chapter 7: Tax Forms for Employers

Chapter 8: Sample Independent Contractor Agreements (I include 5 samples agreements: 3 for teachers, one for a speaker and one for other contractors like a bookkeeper)

Chapter 9: Resources

About the Author

Index

Does any of that sound helpful to your homeschool organization?
The book  in paperback will be available November 1.
The ebook version will be available in a few more weeks.
If you sign up for my email list, you will be sent a coupon code for 20% off the paperback price of $9.95.
Carol Topp, CPA

Paying Workers update will be available November 1

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I’m working hard at getting my book Paying Workers in a Homeschool Organization updated. It’s grown from a 20 page ebook, to a 130 page paperback (ebook version will be available soon as well).

Here’s the Table of Contents:

Chapter 1: Can You Pay a Volunteer?
Chapter 2: Paying Board Members and Other Leaders
Chapter 3: Employee or Independent Contractor? Worker Classification
Chapter 4: Guidelines for Hiring Independent Contractors
Chapter 5: Tax Forms for Independent Contractors
Chapter 6: Payroll Taxes for Employers
Chapter 7: Tax Forms for Employers
Chapter 8: Sample Independent Contractor Agreements
Chapter 9: Resources

 

The book is in the editing phase now and I hope it will be ready for sale by November 1st, 2016.

I know that can’t happen quickly enough for some of you! Just this week I received two emails from homeschool leaders asking if they are paying their teachers correctly.

I will also be offering a service to help assist homeschool leaders to make worker determinations. It will be a phone consultation followed up my helpful guidance on the next steps to take.

Be sure to sign up for my email list so you will be notified when the book is ready and when I will be offering worker determination consultations.

Carol Topp, CPA

Independent contractors and W-9 form

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Carol,
I wanted to check with you about a sentence that is in our Independent Contractor Agreement. No one has ever given us a W-9 before even though they have signed our agreement. Why are the contractors submitting any tax related information to us? I thought they were to complete all of that completely on their own. Is that part necessary?

Thank you so much!!!
Tanya B

Tanya,

The W-9 is the official way to collect an Independent Contractor’s name and SSN or business name and EIN (Employer Identification Number).   This information is needed if you pay them over $600 a year and issue them a 1099-MISC.

You can get the Form W-9 from the IRS website.

The W-9 is also the unofficial way to determine if you are dealing with ethical people. Some people do not like giving their information on a W-9 because they were not going to report the income on their tax return.  Having them fill in a W-9 indicates that your organization obeys the law and expects them to obey the law as well.

Your organization keeps a copy of the W-9 filled in by the Independent Contractor. You do not sent it into the IRS.

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Have more questions about paying workers in your homeschool organization? My book Paying Workers in a Homeschool Organization is being updated and expanded and will be available in print and ebook form later in 2016. Sign up for my email list to get notice of when its ready!

 

Carol Topp, CPA

 

Is our homeschool band director an independent contractor?

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We are in the very beginning stages of becoming a non profit homeschool band.  We will charge a monthly tuition which will cover compensating the band director for directing/teaching the bands. The band director teaches at another business as well. He is planning on incorporating as an LLC. He gets a percentage of each students monthly tuition (he quoted us the percentage he wanted).

Would he be considered an employee or an independent contractor? Again, we are in the very beginning stages, and we want to make sure we do everything correct and legal.

Thank you for any information you can give us.

Heather

 

Heather,

I do not make worker classification determinations. I leave that to the organization and the IRS! I’m a CPA, not a lawyer nor an expert in worker classification or human resources.

You did tell me 3 things that seem to imply that your band director looks like an independent contractor (IC):
1. He teaches at another business
2. He is setting himself up as a business owner (“planning on incorporating as an LLC”)
3. He is not paid by the hour (“He gets a percentage of each students monthly tuition”).

But there are many other factors to consider, mainly how much control your organization will have over him and his work. I discuss the other factors to consider in my book Paying Workers in a Homeschool Organization

If you determine he is an IC, then I strongly advise you to have a written contract with him and clearly spell out that he is hired as an IC and responsible for his own taxes (i.e. your organization will not be withholding any tax). Have him fill out a W-9 to collect his legal name and Social Security Number (or EIN for his business), too. This is all covered in the Paying Workers book.

I offer phone consultations to help you determine if your homeschool organization’s workers are employees or independent contractors. The phone call will be followed up with an email containing a fact-based determination and information to help you take the next steps.

To request a consultation, please contact me. I’m happy to help and relieve any anxiety you have about this confusing topic.

Good luck to you! I hope the band is a great success.

Carol Topp, CPA
HomeschoolCPA.com

 

 

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Independent Contractors: Type of Relationship

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We’ve looked at two factors the IRS uses to distinguish between employees and independent contractors: Behavioral Control and Financial Control. This blog post will discuss the third factor: Type of Relationship. 

As you read through this factor and the other two, consider how your homeschool group is treating its workers. Make changes to clearly distinguish your employees from your independent contractors.

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Type-of-Relationship

Type of relationship refers to facts that show how the worker and business perceive their relationship to each other.

The factors, for the type of relationship between two parties, generally fall into the categories of:

  • Written contracts
  • Employee benefits
  • Permanency of the relationship
  • Services provided as key activity of the business

Written Contracts

Although a contract may state that the worker is an employee or an independent contractor, this is not sufficient to determine the worker’s status.  The IRS is not required to follow a contract stating that the worker is an independent contractor, responsible for paying his or her own self employment tax.  How the parties work together determines whether the worker is an employee or an independent contractor.

Employee Benefits

Employee benefits include things like insurance, pension plans, paid vacation, sick days, and disability insurance.  Businesses generally do not grant these benefits to independent contractors.  However, the lack of these types of benefits does not necessarily mean the worker is an independent contractor.

Permanency of the Relationship

If you hire a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that the intent was to create an employer-employee relationship.

Services Provided as Key Activity of the Business

If a worker provides services that are a key aspect of the business, it is more likely that the business will have the right to direct and control his or her activities.  For example, if a law firm hires an attorney, it is likely that it will present the attorney’s work as its own and would have the right to control or direct that work.  This would indicate an employer-employee relationship.

 

Read the other factors that determine worker status:

Financial Control

Behavioral Control

And always remember:

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

Still confused? Maybe my book, Paying Workers in a Homeschool Organization can help. It’s written just for homeschool leaders.

Or perhaps you prefer a private phone consultation. I offer a worker classification determination to help homeschool groups know if they are classifying their workers correctly.

Carol Topp, CPA

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