Accounting Software for Homeschool Groups

 

Does your homeschool group use software to manage it’s finances?

It’s something you should consider. Carol Topp, the HomeschoolCPA, discusses when you should use software and offers  her opinion on software that’s best for homeschool groups.

 

In the podcast Carol mentioned:

QuickBooks Online. You may be eligible for a free version of QuickBooks Online. I wrote about it here: Use QuickBooks Online for free

Wave Accounting. I set up a small nonprofit on Wave recently. It’s working for them and it’s free!

Aplos Software which is popular with nonprofits and churches.

Ace Money Lite free personal finance software

 

Featured resource
Carol Topp, CPA has written a book just for homeschool treasurers:

Money Management in a Homeschool Organization

  • Does your homeschool group manage their money well?
  • Do you have a budget and know where the money is spent?
  • Do you know how to prevent fraud?

This 115 page book will help you to open a checking account, establish a budget, prevent mistakes and fraud, use software to keep the books, prepare a financial statement and hire workers. Sample forms and examples of financial statements in clear English are provided.

 

Carol Topp, CPA

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Why Your Homeschool Group Needs to Do a Bank Reconciliation

 

Is your homeschool group reconciling your bank account every month? You should be!

Carol Topp, the HomeschoolCPA, explains why bank reconciliation is the most important task you should do to manage your group’s finances. But don’t let your treasurer balance the checking account! It should be someone else. Listen to the podcast to understand why.

 

 

Featured resource

Carol Topp, CPA has written a book just for homeschool treasurers:

Money Management in a Homeschool Organization

  • Does your homeschool group manage their money well?
  • Do you have a budget and know where the money is spent?
  • Do you know how to prevent fraud?

This 115 page book will help you to open a checking account, establish a budget, prevent mistakes and fraud, use software to keep the books, prepare a financial statement and hire workers. Sample forms and examples of financial statements in clear English are provided.

Carol Topp, CPA

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Paypal sent homeschool leader a 1099-K. Is it taxable income to her?

 

Our homeschool co-op leader set up a Paypal account to collect payments from our parents. She was very surprised when Paypal sent her a 1099-K for $40,000 with her name on it! Does she have to report this on her tax return even though it was for the co-op?

 

Oh dear. It appears that leader used her personal name and Social Security Number when setting up the Paypal account. She also used her name and SSN when setting up a checking account. This is not good!

This group was in the process of forming  as a nonprofit corporation in her state, getting an EIN for the corporation, and then applying for tax exempt status with the IRS. But the parents starting paying before all the paperwork was completed so the leader simply set up a personal Paypal account. It’s easy to set up a Paypal account (I have 3 Paypal accounts myself). But now she has a tax mess on her hands!

She should have filed as a nonprofit corporation, gotten an EIN and then set up the PayPal account in the name of the new nonprofit corporation with their new EIN. Then the 1099-K would have come to the homeschool group, not her personally.

But that’s water under the bridge.

In the eyes of Paypal and the IRS, the leader has started a business, collected money, and now needs to report that on her income tax return. Ugh!

She should file a Schedule C Business Income on her personal Form 1040 and report the Paypal income as Gross Receipts. At this point the leader should contact me or a local CPA for assistance in preparing her tax return. This is not the year for DIY! She does not want an IRS audit!

Additionally, she needs to set up this homeschool organization properly with nonprofit corporation, getting an EIN, and then applying for tax exempt status with the IRS, ASAP! I can help with that.

Download my list of steps to take to set up a nonprofit homeschool organization.

 

Please homeschool leaders, do not set up Paypal accounts, bank accounts or EINs in your personal name. Establish an organization and conduct business in the organization’s name only. Otherwise, you may face a complicated tax issue like this poor leaders.

Carol Topp, CPA

Preventing Fraud in Your Homeschool Group: Separation of Duties

What’s the best way to to prevent fraud or mistakes in the finances of your homeschool group?

It’s called separation of duties and Carol Topp, the HomeschoolCPA explains why your treasurer should not be doing all the financial tasks in your homeschool organization. In this 12 minute podcast episode Carol explains how you can separate and share the money management tasks.

 

In the podcast Carol mentioned a list of suggestions to prevent fraud.

Excerpt from Money Management in a Homeschool Organization on preventing fraud (opens as a pdf)

 

Featured resource

Carol Topp, CPA has written a book just for homeschool treasurers:

Money Management in a Homeschool Organization

  • Does your homeschool group manage their money well?
  • Do you have a budget and know where the money is spent?
  • Do you know how to prevent fraud?

This 115 page book will help you to open a checking account, establish a budget, prevent mistakes and fraud, use software to keep the books, prepare a financial statement and hire workers. Sample forms and examples of financial statements in clear English are provided.

Carol Topp, CPA

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Can a homeschool co-op invoice the parents on behalf of a teacher?

co-op-invoice_14053
Hi Carol,

I recently found your website and have found it very useful.  I am waiting for your book Paying Workers in a Homeschool Organization to be delivered this week to me.

We are trying to figure out how to invoice families for their student’s classes.  I collect the checks each month from the families and then disperse them to the teachers. I started using QuickBooks to send invoices, but since the money goes to the teachers, I don’t enter any money received which throws off our accounting records.  Is there a way to make QuickBooks work for this?

I did find where you suggested to have the teacher’s collect the money themselves, but is there a way we can still do the invoicing?

Thank you,

Kari

Kari,

I hope the Paying Workers book is helpful.

Since your organization is sending out the invoices and your organization collects the money from the parents, then the money belongs to your organization and needs to be recorded as revenues in QuickBooks (use the Customers>Receive Payments). When the teachers get paid, it is recorded as an expense in QuickBooks probably using an expense account such as Contract Labor or Wages.

By the way, you need to determine if your teachers are employees or independent contractors. I can help you decide.

You asked, “I did find where you suggested to have the teacher’s collect the money themselves, but is there a way we can still do the invoicing?”

Nope. If your organization sends the invoice, that means that your organization, not the teacher, expects to be paid the money.

If your organization wants the teachers to be paid directly by the parents, then your homeschool group has to stay out of the relationship.

You group should not invoice the parents, tell the teacher what she can charge, and not collect the checks from the parents.

The teacher must handle the money collection from parents all by herself. She is in business for herself and your homeschool organization should stay out of the money she collects from the parents.

I hope that helps,

Carol Topp, CPA

Tax Form 1099-MISC to Independent Contractors

Did your homeschool organization pay an Independent Contractor more than $600 in 2017? Then you need to give them a 1099-MISC form.

Accountant Carol Topp, the Homeschool CPA, explains how to fill out the form, how to get the form, and tips for filing it correctly.

In the podcast Carol mentioned using a 1099-MISC filing service like Yearli.com. Email Carol@HomeschoolCPA.com for a discount code worth  15% of their prices.

 

Featured resource

Are you paying workers in your homeschool organization? Can a volunteer be paid? Should a worker be treated as an employee or independent contractor? Do you know the difference?

Homeschool leader and CPA, Carol Topp, has the answers to your questions in her book Paying Workers in a Homeschool Organization.

This 130 page book covers paying workers as employees or independent contractors. There are alos chapters on paying volunteers and board members. It includes sample forms, tips and advice to help you pay workers in accordance with the IRS laws to help your organization pay their workers correctly. Written specifically for homeschool organizations.

Click Here to request more information!

Carol Topp, CPA

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Why I think most homeschool teachers should be paid as employees

 

I state pretty clearly in my book Paying Workers in a Homeschool Organization (3rd edition) that teachers in a homeschool program should be treated as employees not Independent Contractors.

I’ve gotten some push back on my opinion.  I understand why. No one likes the expense and paperwork involved in employees, especially when they are  hiring part-time and seasonal employees.


But my goal is to keep homeschool organizations and their leaders out of trouble with the IRS and state governments. We don’t need a target on our backs! So I’m going to stick to my opinion because I think it’s correct and best protects homeschool leaders.


So let me explain why I have the opinion I do:

The IRS guidelines on worker classification are where I start. The IRS has the old 20-factor test and the newer 3 factor common law rules. I wrote about both of these guidelines extensively in Paying Workers.

But, I base my opinion on more than the IRS guidelines. I base it on hours of reading IRS rulings and tax court cases and my understanding of how homeschool programs operate.

I also base my opinion on this statement given by Bertrand M Harding, an attorney who specializes in nonprofit law. In his book The Tax Law of Colleges and Universities (Third Edition, Wiley, 2008) he writes,

“In at least one audit, the IRS agents asserted that, because instruction is such a basic and fundamental component of a college or university*, individuals who are hired to provide instruction should always be treated as employees because the school is so interested and involved in what they do that it will always exercise significant direction and control over their activities.” (emphasis added)

* The IRS was specifically addressing instructors at colleges and universities, but I believe their conclusion applies to public schools, private schools, and homeschool programs as well.

Some homeschool leaders differ with my opinion. I believe they are putting themselves at risk and I caution them about IRS penalties, etc. The Landry Academy IRS problems was a wake up call of how bad it can get. Although I don’t know the particular details on the financial penalties faced by Landry Academy, it was significant enough that the business declared bankruptcy.

I released a podcast on creative ways that homeschool co-ops can hire teachers without paying them as employees. Creative Ways to Run Your Co-op Without Employees

I hope that helps,

Carol Topp, CPA
HomeschoolCPA.com

Can a homeschool co-op have independent contractors and follow the IRS guidelines?

Hi Carol!

Are you aware of any homeschool co-ops/tutorials that have hired teachers as independent contractors and do it in a way that follows the IRS guidelines?
Thanks!
Lauren

Lauren,

I am aware of a lot of homeschool co-op and tutorials that pay teachers as Independent Contractors. Are they following the IRS rules?

Maybe. It depends. Read on…

After a lot of research into IRS rulings and US Tax Court cases concerning the classification of teachers (usually college professors), I learned that one of the factors that weighed heavily in the decision (employee or Independent Contractor) was:

Does the worker provide the primary activity of the organization.

This was really important in the IRS and tax court decisions.

Case 1: employees: I spoke to one homeschool leader who ran a homeschool tutorial program with 12 teachers, all paid instructors. There were no volunteer teachers. Those teachers are providing the key activity of the business. Without them, there would be no homeschool tutorial program. Those teachers are employees.

Case 2: Independent Contractor: On the other hand, I spoke to a homeschool co-op leader who had 15 parents volunteering as teachers and one paid outside person to teach one class. This person was very independent (she had an established tutoring business, picked her own curriculum, received no training or benefits from the co-op, brought in her own supplies, and many other factors).  She was treated as an Independent Contractor. Her services were not the key activity of the co-op; what the volunteer parents provided was the key activity of the co-op. The co-op could continue to exist if that Independent Contractor teacher was unavailable.
This co-op did everything they could to avoid controlling their Independent Contractor teacher. They also has a written agreement and she invoiced the co-op for her services.

But just to be sure, they requested I write a letter clearly stating the facts of their situation and my determination that the outside teacher was correctly classified as an Independent Contractor. It’s called a comfort letter.

My letter, as the opinion of a tax professional licensed to practice before the IRS, can serve as a reasonable basis if the IRS ever questions the homeschool co-op. This reasonable basis will help the homeschool co-op avoid any penalties and back taxes from the IRS.

See how the facts and circumstances of each case can be different? There is not bright line test in worker classification. The determination if your homeschool program teacher is an employee or Independent Contractor depends on the facts and circumstances of each case.

If you would like help determining your teacher’s status or have me write a “comfort” letter, contact me. We’ll set up a phone call where I ask you a bunch of questions. The phone call will be followed up with an email containing a fact-based determination and information to help you take the next steps.

My book Paying Workers in a Homeschool Organization is a great place to start to understand how to properly classify your workers.

I released a podcast on creative ways that homeschool co-ops hire teachers without paying them as employees. It runs about 9 minutes long.

Creative Ways to Run Your Co-op Without Employees

I hope that helps,

Carol Topp, CPA
HomeschoolCPA.com
Helping homeschool leaders

Is the rent our homeschool group pays to a church a donation?

Our homeschool co-op meets at a church, but they do not want to bill us for rent. The co-op gives a  gift/donation to the church as a thank you and so the church records it that way for their tax purposes.  Do we need to classify our “donation” to the churches as rent?
We have been informed by the church that this would affect their taxes and financial recordings since they are classifying our payment as a donation received. The last thing we want to do is cause problems for the churches sharing their space with us. Please advise/explain.
Kelly
Let me start off by saying that simply calling what you give to the church a “donation” is a simply renaming the payment. Calling your payment a donation does not change the fact that you are giving money to this church in exchange for use of its space. Even if they do not bill you, it is payment for use of space and not a donation. Be honest. Call it what it is in your records: rent. What the church wants to call it is up to them.
I’m not alone in my opinion about this. Attorney and CPA, Frank Sommerville, says

“Many churches try to disguise rents by using other terminology or by claiming that the other organization is simply giving a donation to the church. Other times the church calls it a “cleanup fee” or tells the tenant to pay the janitor directly for his services. None of these name games work. If any amount is paid by the other organization to the church or the church’s workers, then the IRS and state taxing authorities will likely treat it as rent paid to the church.”
Source: Frank Sommerville, JD, CPA https://www.wkpz.com/content/files/Use%20of%20Church%20Facilities%20by%20Outside%20Groups.pdf

But the church is worried about taxes, so let’s address that. The church is worried about two things:

  • IRS federal income tax exempt status as a 501(c)(3) religious organization
  • Local property tax exemption.

Let’s address each concern:

IRS federal income tax exemption.
The church has 501(c)(3) tax exempt status as a religious organization and probably also charitable and educational purposes as well. So long as they stick to religious, charitable, and educational activities their 501(c)(3) status is not in jeopardy.

But renting space is a commercial activity and not religious, charitable or educational. So the IRS considers income from renting space as “unrelated business income” and will charge an unrelated business income tax called UBIT on the profits from the rented space.

Fortunately, there are exceptions to UBIT. Three factors will determine whether the church would owe any UBIT on rental income (See IRS Pub 598 ) :

  1. Whether the group renting the church space helps the church fulfill its mission in some way. There is no UBIT if the tenant’s activities helps the church meet its mission. Your homeschool co-op, if religious in its purpose, helps the church accomplish its mission and the rent you pay would not be an unrelated source of income for the church.
  2. Whether the church is charging fair market value for the space. If they are charging above fair market value, there is a profit and therefore tax to pay.
  3. The church has a mortgage or other debt financing on the building (called debt-financed property by the IRS). If the building is debt financed property, the rental income is unrelated business income and therefore taxable.

If the church determines they have unrelated business income, they will have to file a Form 990-T to declare the unrelated business income. But they are also allowed to deduct any expenses related to the rental income such as utilities, custodian care, etc. Typically the expenses  outweigh the income and so no tax is owed. But the church needs to file the 990-T to prove that don’t owe any tax.
Thanks to http://www.corestrategies4nonprofits.com/nonprofit_core/Go_Ahead_-_Rent_Your_Extra_Space

Kelly’s homeschool group’s purpose (religious and educational) helps fulfill the church’s mission and does not threaten its 501(c)(3) status. The church, if it has a mortgage, may need to prepare a IRS Form 990-T and may (or may not) owe UBI tax on the rental income. So, in other words, it is the church’s mortgage that could cause UBIT, not the fact that Kelly’s group is paying rent to use their space.

Property tax exemption:
The church may be concerned about its property tax exemption from the state or county. In general if the tenant’s mission matches the church’s mission (religious, charitable and/or education), the church’s property tax exemption is not jeopardized.

BTW, if your homeschool group is not a nonprofit organization (meaning it is a for-profit business), using church property could endanger the property tax exemption of the church. The loss of property tax exemption can be in whole or in part; it depends on local and a state property tax exemption laws.

Kelly’s organization is a nonprofit with religious, charitable and educational purposes. It ‘s use of the church building does not threaten the church’s property tax exemption.

Conclusion:
Kelly could go back to the church and determine the basis for their concern. In all likelihood things will continue as usual with Kelly’s organization making a payment to the church as they see fit. I recommend that Kelly record this in her group’s bookkeeping as “rent.” How the church wishes to record it is ultimately up to them, but in my opinion (and other professionals’ opinions), it is not a donation; it is payment for use of space.

Hopefully the church will be honest to the government and prepare the Form 990-T, if required.  This is rendering to Caesar what belongs to Caesar (Matt 21:22). Whether or not the church will owe UBI tax on this money is dependent on if they have a mortgage on the building and the amount of expenses they have.

Carol Topp, CPA

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What is the IRS planning to do in 2018 for tax exempt organizations?

The IRS Exempt Organization (EO) released their 2018 work plan. It reviews what they did in 2017 and what they will focus on in 2018.

(Note: this is not the individual or business part of the the IRS. This is only the tax exempt part of the IRS.)
Here’s an excerpt that affects homeschool tax exempt organizations:

IRS EO expects to receive an increased number of determination applications in FY 2018. In early 2018, the EO will implement revisions to the Form 1023-EZ, including a required activity description and additional questions on gross receipts, asset thresholds, and foundation classification. As a result of these changes, EO expects the average processing time for a Form 1023-EZ to increase. EO will continue pre-determination reviews of a statistical sample of Form 1023-EZ applications and will continue to analyze the data from these applications to mitigate risks and identify opportunities to improve this form and its instructions.

Okay, now in plain English, the IRS EO (Exempt Organization) will:

  • Ask for a short description of your activities when applying for 501(c)(3) status using the short Form 1023-EZ.
  • They will ask more questions about:
    • Your gross receipts (your sources of income)
    • Your assets (what you own) and
    • what kind of foundation you are. Most homeschool groups are public charities and not private foundations, so most likely this won’t affect you.

The IRS expects it will take longer to get 501(c)(3) approval using Form 1023-EZ. Right now it takes about 2-3 weeks.

They will still randomly sample some 1023-EZ applications and decide if they need to make changes to the form in the future.

 

If your homeschool group has questions about tax exempt status or would like to apply for tax exempt status, please contact me.

Carol Topp, CPA

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