Crackdown on using Independent Contractors

This article from Forbes discusses independent contractors and employees.

The Department of Labor is considering requiring businesses (and that would include nonprofits) to give every IC a “Right to Know” document explaining why they are not classified as employees.

 

It would require giving each independent contractor a kind of written Miranda warning notifying the independent contractor about:

  1. The federal tax obligations of an independent contractor;
  2. The labor and employment law protections that do not apply to independent contractors; and
  3. The right each independent contractor has to ask the IRS to determine whether he or she is an employee or independent contractor.

These might affect you if your homeschool organization hires independent contractors. A lot of homeschool co-ops hire teachers as independent contractors.

I’ll keep you posted if these regulations come to pass.

Carol Topp, CPA

Not ready for 501c3 status. What’s an intermediate step?

Hi-

We are in the process of moving toward becoming a 501c3 group but we don’t have enough financial history or the resources to accomplish it right now so we would like to do the intermediate step of becoming a corporation.

We are based in Pennsylvania but I’m not sure what type of corporation we should be, LLC or something else.

We would like to keep it as simple as possible so we can easily transition to a 501c3 down the road. What do you recommend?

Thanks for your help.

Delia in PA

 

Delia,

Your homeschool group sounds like many others that become a nonprofit corporation. Be sure you read my articles before filing for nonprofit corporation status

There is some very specific language that the IRS will expect to see in your nonprofit paperwork (called your Articles of Incorporation) in order for you to receive 501c3 tax exempt status in the future.
See my sample Articles of Incorporation here: http://homeschoolcpa.com/leader-tools/sample-documents/

Don’t delay too long between becoming a nonprofit and filing for 501c3 status. The IRS expects you to file for 501c3 within 27 months of your date of formation (i.e. the date you became a nonprofit corporation)

As for being an LLC, it’s not very common for nonprofits. This blog post will help: http://homeschoolcpa.com/should-my-homeschool-group-file-as-an-llc/

I hope that helps!

Carol Topp, CPA


 

When you are criticized for being a homeschool leader

My (virtual) friend Denise Hyde runs the Homeschool Group Leader blog over at http://hgleaderblog.blogspot.com/

She recently received some criticism for being a group leader. Denise shares how she dealt with the sting offers encouragement to other homeschool leaders.

 

  • First, you don’t take it personally. I know, it’s very difficult! I had to swallow a couple of times, send a prayer-flare, and focus on trying to learn from the problem instead of internalizing it.
  • Then ask a few clarifying questions while you settle your feelings and get a handle on the true cause of the discontent. I started with the fellowship, asking her to describe when she felt left out. Ended up it was on a FYI field trip where everyone took their families through the displays on their own. It was a misconception about the type of field trip. Then I tackled the religious view differences and the homeschool philosophies that she had encountered.
  • As we discussed each one, I realized that most of these were things that I couldn’t change her mind on. At that point, I just reassured her of her welcome, pointed out a couple of things to counter her viewpoint, and let her go.
  • Yes, I ended it. I wished her well, telling her I hoped she would find a perfect fellowship for her and her son. Sometimes that is the best policy. Don’t beg them to stay, or try to fix it perfectly. Let them go with genuine care and kindness.
  • Next, realize what you can learn and improve. Put your energy into doing what you truly can do. Nurture the strengths of the group. Follow your God-given goals for the group and the purpose of your homeschool group.
  • Remember, you can’t please everyone, so again, don’t take it personally!
  • Oh, and yeah. . . . focus on the compliment again! Look at all the families that ARE receiving strength from your group. You are doing a great service! Your ministering IS making a difference.

See the entire post at http://hgleaderblog.blogspot.com/2012/12/best-and-worst.html

Hang in there homeschool group leader! Take Denise’s advice to heart and know that what you’re doing is important work!

Carol Topp, CPA

How can you ask a member to leave your homeschool group?

Hey Carol,
We do not have anything in our by-laws or policies about dealing with a mom in the group whom the board feels must be asked to leave.

 

I have steps in place for dealing with students, but had never even considered an issue with a mom in the group.

 

Joy  from Florida
Joy,
At a homeschool convention this summer, Attorney TJ  Schmidt from HSLDA recommend all organizations have in their bylaws a sentence that states something about membership in the organization can be terminated at any time and without cause.

 

He then advised that if you do terminate a membership, that you NOT give a reason (i.e. cause).  Giving a reason can open up the leadership to headaches, liability, and arguments.

 

I agree completely with Mr Schmidt. If your board decides to ask this member to leave, then do not discuss the reason why with your other members or get in a discussion with the offender about her behavior. Certainly, the board can discuss the “why” but that should not be made public.

 
I know it is tempting to defend yourself, but just say

“We’ve been advised to not discuss publicly sensitive matters such as these. It was a board decision.”

I think that a statement such as “membership in the organization can be terminated at any time by decision of the board and without cause” should be on the registration form that the members sign as well as the bylaws (because the members don’t usually read the bylaws).

I hope that helps!

Carol Topp, CPA

 

 

How to thank a volunteer

One of the blogs I read Nancy with Nonprofit Accounting Help, recently went to an IRS seminar for nonprofits.

The subject of giving thank you gifts to volunteers came up.

http://www.nfpaccountinghelp.org/volunteer-thank-yous-cash-gift-cards-or-non-cash-gifts/

Here’s an excerpt:

Volunteer Gifts vs. Compensation

Joe Kroll and Ryan Johansen of IRS explained that volunteers are people who perform work and receive no compensation for it, so when they are suddenly compensated, the organization runs the risk of giving them taxable income. Non-cash gifts – a turkey, a coffee cup – pose no problems, but gift certificates and cash are taxable income to the recipient. They noted that the FICA threshold is $100 a year, meaning if volunteers are compensated with, say, $250 gift certificates, they will owe FICA of 5.65% and the organization will owe 7.65% – and wouldn’t the organization want to pay both parts to avoid taking away from its gift?

So yes, you can say ‘thank you’ to your volunteers with cash, just provide them with a report the following January showing that they received taxable income. It’s probably a good idea to warn them that they will need to include the gift in their taxable income. I didn’t ask whether you’ll be issuing W-2 or a 1099 – consult your payroll service.

Keep Volunteer Appreciation Simple For Everyone

With the added layer of complexity that comes with cash or gift card thank you’s, it might be in every one’s best interest to just avoid cash and gift certificates. Nothing says “thank you” quite like making the volunteer’s tax return more difficult!

Alternatively, you can avoid the whole problem by choosing a different means of expressing appreciation, i.e. non-cash gifts. Here’s a site with some great ideas http://www.energizeinc.com/ideas/gift.html. How do you show your volunteers that you appreciate their time and effort?

Well, I don’t like the sound of THAT!! Taxable income for a gift card to appreciate a volunteer! Ugh!

But I thought I’d share this with you so you can consider how to thank your volunteers.

 

Carol Topp, CPA

Handling supply fees in a co-op

 

The Facebook group I Am A Homeschool Group Leader recently helped one leader, Particia,  with managing her co-op’s supply fees:

We have the teachers… reimbursed dependent upon how many students they have in that class. This is not working! We must set class fees before the schedule goes out (obviously), but sometimes the teachers may end up with 3 in their class, and sometimes 15. Therefore, sometimes they divide the cost of their curriculum among more students then they receive, and we can only reimburse them the amount that we take in. Please tell me a better way to handle class fees!

 

 

My comment on charging fees: Since I’m a CPA, I think like I was taught in my accounting classes. You have fixed costs (same regardless of number of students such as a teacher’s guide or equipment the entire class uses) and variable costs (increase as number of students increase such as individual books). Some classes have both fixed and variable costs. Most probably have only variable costs.


I recommend in my book “Money Management for Homeschool Organizations” that you charge more than enough to cover your variable costs. IOW, include a buffer for the variability.
http://homeschoolcpa.com/bookstore/managing-a-homeschool-organization/ ($3.99 for the ebook)

Consider this policy: The co-op could reimburse for fixed costs if the co-op remains the owner of the book/equipment. If the teacher wants to keep the book/equipment herself then there is no reimbursement. This assumes the co-op wants to own some supplies and has enough in their budget to purchase them.

 

Patricia replied: Yes Carol, I have read that before! We do pay for certain curriculum that the group itself can then accept ownership of, and loan out to families who may need it in the future.

But, the idea of the teacher paying for the books that she is keeping, is a great idea! That would definitely help with the cost of the class, by focusing mostly on the variables. I have an accounting back ground as well, I think that’s why this stuff drives me crazy!!!

 

Miriam explains how her group manages the money:
We don’t buy any supplies for our teachers because they are considered independent contractors. The teachers set their material fees and those fees are collected in May. On July 15th teachers can deposit them, but they are refundable up through August 7th if a family drops the class. Material fees vary according to subject. Tuition is a set yearly fee and is collected in monthly installments, if parents wish to pay that way. Materiel fees collected in May by registrar, tuition collected by teachers (we have folders for parents to put checks into and teachers collect at the end of the day).

 

If you are a homeschool group leader that would like to join this conversation, please “request to join” with a note stating that you are a homeschool group leader and where you lead.
https://www.facebook.com/groups/72534255742/

 

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

The IRS’s Word on Fundraising Do’s and Don’ts

Carol,

My homeschool group does several fund raisers where we divide the proceeds to each family to reduce the parents’ tuition. We have a shoppers reward program and I track how much of a tuition credit each parent earns by using their shoppers reward card.  We also let students or parents work off some tuition by volunteering to work a shift at our city’s major league baseball stadium concessions.  The team makes a donation to our homeschool group (a 501c3 organization).  I’m having a hard time finding information on the IRS website about these types of fund raisers.

Susan in Ohio (paraphrase from a spoken conversation)

Susan,

I’m sorry you found it so difficult to find information about fundraisers like your group is running. Sometimes you have to know the correct language to use in a search. Search on the words “Booster Club” to see what the IRS has said.

Here’s a wonderful link from a lawyer, Harvey Mechanic, that volunteers to answer nonprofit questions. He gets a lot of questions about booster clubs and fund raising like this one in particular: AllExperts NonProfit Law:Booster Clubs

To see all the questions and answers go here: AllExperts NonProfit Law

irs1Mr Mechanic frequently refers readers to an IRS document titled Athletic Booster Clubs: Are They Exempt? He summarizes and edits the IRS document here: Summary of IRS Article on Booster Clubs

Here’s the full text at 14 pages: http://www.irs.gov/pub/irs-tege/eotopica93.pdf

I’ve read this document several times. It is a document that the IRS uses to train their employees. While it addresses athletic booster clubs, the principles apply to school booster clubs also, including homeschool groups that do fund raising.

Finally, Mr Mechanic answers a question about fund raising by working concessions at MLB games here: Working Concessions at MLB Games

I hope that helps. Sorry there’s not one paragraph at the IRS website to point you to! This is a collection of laws, rulings and cases over several years.

Carol Topp, CPA

Group over the $5K limit. What to do?

Hi Carol,

tn_texas2b I’m part of a homeschool organization that is considered an Unincorporated Non-Profit Association in the state of TX which by Texas law can not take in more than $5000. What should we do?

Thank you,

Sandy in TX

Dear Sandy,

I visited the State of Texas website to read about the Unincorporated Non-Profit Association laws. I could not find any restriction on the amount of money your organization can make.

I think I understand where you got the $5,000 threshold. The IRS does state in the instructions to Form 1023 (Application for Recognition of Exemption under 501c3) that:

The following organizations are excepted from the exemption application requirement: Churches, their integrated auxiliaries, and conventions or associations of churches; and an organization that is not a private foundation and the gross receipts of which in each taxable year are normally not more than $5,000.

So as long as your organization stays very small, you are tax exempt. If you make more than $5,000 gross revenues in a year, you need to file the Form 1023 to remain tax exempt with the IRS. So this is really an IRS/federal tax requirement, not a Texas requirement.

So you have several years over the $5,000 threshold. Your group has three choices:

  1. file IRS Form 1023 and become tax exempt
  2. pay income taxes
  3. restructure your group to stay under the $5,000 income limit.

Any of the options are workable. There are costs and benefits to all three options. Without knowing a lot more about your group, I cannot tell you which option is best for you.

Your group is not unique. Like many homeschool groups, you are finding that your organization is growing and doing more for homeschooling families. That’s wonderful, but then you can run into road blocks like the $5,000 income limits.

Carol Topp, CPA

More Parents Opting for Homeschooling

 

I’m quoted talking about homeschool co-ops and all the opportunities available to homeschoolers in this article from EpochTimes.

More Parents Opting for Homeschooling

Carol Topp, a Certified Public Accountant (CPA) and author of “Home-school Co-ops: How to Start Them, Run Them and Not Burn Out,” homeschooled her 2 daughters, now in college, for 14 years, and they were in a co-op for 12 years.

Topp said that she homeschooled for academic appeal at first, but she then found that she loved the opportunities it gave her children. “We continued because we loved the flexibility and the freedom,” said Topp.

"We took great field trips"

“We took our kids on great field trips,” said Topp. They went to China in September 2003 for 2 weeks.

“Most of our family vacations were in September when the weather was so great but the prices were low,” said Topp. There was also freedom to take a step back from a frustrating subject and then go back to it refreshed, and freedom to advance in a subject that her daughters excelled in.

According to Topp, homeschooling is growing in popularity by leaps and bounds. “There were not as many opportunities 10 to 20 years ago as there are now,” said Topp.

Her daughters were in an orchestra as acted in plays, and Ohio has homeschool football and basketball teams that play on the national level. Topp is seeing increasing opportunities for homeschoolers in their community.

For example, there is “a gym holding classes for homeschoolers during the day when homeschoolers are available and the gym is available,” said Topp. She said that there are more homeschoolers nowadays, and gyms are recognizing that.

Topp also said that in a co-op, parents should share the work. “I have seen many people burn out because they are doing too much. They need to make it a team of people that all pitch in together and share the load,” advised Topp.