Are 501(c)(3) and 501(c)(7) the only options for a homeschool group?

We are meeting with support group leaders this weekend and a question has come up about legal status of homeschool groups.

Are 501(c)(3) and 501(c)(7) the only options for a homeschool group?

Dorothy

 

Dorothy,

The IRS has over  20 types of tax exempt status, all 501 (c)-somethings. Everything from Teachers’ Retirement Fund Associations (c)(11), Veterans organizations(c)(19), and Cemetery Companies (c)(13).

501(c)(3) Qualified Charity which includes educational organizations and 501(c)(7) Social Clubs (i.e. support groups) are most common for homeschool groups.

501(c)(4) Social Benefit status fits state-wide homeschool organizations, some homeschool conventions, and politically active homeschool organizations.

In the last 10 years, I’ve seen more and more homeschool organizations operate as for-profit business without nonprofit tax exempt status.

So while there are several options for homeschool groups, the vast majority of homeschool organizations are 501(c)(3)  educational organizations.

Carol Topp, CPA

 

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How can I thank my volunteers?

 

It’s the end of your homeschool organization’s school year and you want to thank your volunteers. They work so hard, so you hand out generous gift cards as thank you gifts. You may have just created a tax liability for your volunteers! Carol Topp, CPA, the Homeschool CPA discusses ways to thank your volunteers that are tax-free.

Listen to the podcast

 

Do you have more questions about volunteers and paying workers? I spent at lot of time doing research so that homeschool leaders will know if they are paying their volunteers, board members, and workers legally and correctly. It’s all in this new book:

payingworkerscoveroutlined

Paying Workers in a Homeschool Organization-2nd edition

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

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Understanding Taxes for a small homeschool business

It’s tax season and I’ve been getting several emails from homeschool business owners, especially Classical Conversations directors, about how to fill out their tax returns.

The IRS has a terrific website called Understanding Taxes that explains how to fill out a simple business tax return.

It’s quite good. I’ve used their simulations when I taught personal finance at my homeschool co-op

Visit these websites to learn how to fill out your Schedule C Business Income and Loss.

Understanding Taxes home page

Simulation of filing a simple business tax return using Schedule C-EZ

Simulation of filing a simple business tax return with a 1099-MISC (this simulation would be helpful for a Classical Conversation tutor who receives a 1099-MISC).

 

You could also try searching Youtube for helpful videos on preparing a business tax return. Here’s one I found:
How to Fill Out Schedule C for Business Taxes He goes over the Schedule C line by line in about 20 minutes.

 

I hope that helps,

Carol Topp, CPA

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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

What Homeschool Leaders Don’t Know About Losing Tax Exempt Status

What Homeschool Leaders Don’t Know About Losing Tax Exempt Status

Carol Topp, CPA, the HomeschoolCPA will share tips on important issues that homeschool leaders may not know about. This episode will focus on helping homeschool leaders know what to do if their organization has lost its tax exempt status.

Listen to the podcast

Does your homeschool group need to pay taxes?

Could they avoid paying taxes by being a 501c3 tax exempt organization? Do you know the pros and cons of 501c3 status? Do you know what 501c3 status could mean for your homeschool group?

I have the answers for you in my book The IRS and Your Homeschool Organization. The information I share in my book has been helpful to homeschool support groups, co-ops, music and sports groups and will help you understand:

  • The benefits of 501c3 status
  • The disadvantages too!
  • What it takes to make the IRS happy
  • What your state requires
  • Why your organization should consider becoming a nonprofit corporation
  • What is the difference between nonprofit incorporation and tax exemption
  • IRS requirements after you are tax exempt

Click Here to request more information!

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What Homeschool Leaders Don’t Know About IRS Annual Reports

 

What Homeschool Leaders Don’t Know About IRS Annual Reports

Carol Topp, CPA, the HomeschoolCPA will share tips on important issues that homeschool leaders may not know about the IRS Annual Reports. This episode will focus on helping homeschool leaders understand a report that the IRS requires from all tax exempt organizations–including your group! It’s called the Form 990.

Listen to the podcast

Carol Topp, CPA can help with:

Preparation of IRS Annual Return

Preparing the Form 990/990-EZ Annual Information Return for the IRS and your state. The Form 990/990-EZ is due 4 1/2 months after the end of your fiscal year.

This service involves several telephone calls and e-mails and copy of your financial statements (a QuickBooks file is preferred).

I also offer a service I call “Buying Peace of Mind”

This is a a review of IRS forms you have prepared yourself. You can save money by doing much of the work yourself. I will review Forms 1023 or Annual Form 990/990-EZ and offer my opinion and advice.

___________________________________________

Wow Carol!  Thanks so much – just the info you provided here is very helpful.  I look forward to speaking with you as I’m anxious to get started, but I want to do so in the best and most efficient way.  This is new territory for me – so I truly appreciate your guidance!

-Laine Discepoli, Glendale, OH

________________________________________

 

Click Here to request more information!

 

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Are homeschool groups “schools”?

Some homeschool groups look a lot like schools. They offer a full curriculum, there are teachers teaching classes, they rent space to conduct the classes, etc.

So is a homeschool program a school?

I’m a CPA, so I tend to follow the IRS definition of “school.” This blog post is filled with lots of IRS-ese. Dig in and slog through the details if you wish or just scroll to the bottom for my answer.

 

IRS definition of “school” is found in the Internal Revenue Code Section 170 https://www.irs.gov/irm/part7/irm_07-026-002.html#d0e549

IRC 170 (b)(1)(A)(ii) Exclusion—Educational Organizations

  1. Educational organizations described in IRC 170(b)(1)(A)(ii) and Reg. 1.170A–9(b)(1), such as primary schools and universities, are excluded from private foundation status under IRC 509(a)(1).
  2. IRC 170(b)(1)(A)(ii) organizations are commonly known as “schools.”
  3. An IRC 170(b)(1)(A)(ii) organization must:
    1. present formal instruction as its primary function,
    2. normally maintain a regular faculty and curriculum, and
    3. normally have a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on

IRC Section 170 reference Reg, 1.170A-9(b)(1) which states:

An educational organization is described in section 170(b)(1)(A)(ii) if its primary function is the presentation of formal instruction and it normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. The term includes institutions such as primary, secondary, preparatory, or high schools, and colleges and universities. It includes Federal, State, and other public-supported schools which otherwise come within the definition. It does not include organizations engaged in both educational and noneducational activities unless the latter are merely incidental to the educational activities. A recognized university which incidentally operates a museum or sponsors concerts is an educational organization within the meaning of section 170(b)(1)(A)(ii). However, the operation of a school by a museum does not necessarily qualify the museum as an educational organization within the meaning of this subparagraph. (emphasis added)

In the Instructions to Form 1023 Application for Recognition of Exemption Under Section 501(c)(3), the IRS gives a clearer definition of a school:

An organization is a school if it:

  • Presents formal instruction as its primary function.
  • Has a regularly scheduled curriculum.
  • Has a regular faculty of qualified teachers.
  • Has a regularly enrolled student body.
  • Has a place where educational activities are regularly carried on.

The term “school” includes primary, secondary, preparatory, high schools, colleges, and universities. It does not include organizations engaged in both educational and non-educational activities, unless the latter are merely incidental to the educational activities. Non-traditional schools such as an outdoor survival school or a yoga school may qualify.   The term “school” does not include home schools.

Answer “Yes” if you have a regularly scheduled curriculum, a regular faculty of qualified teachers, a regularly enrolled student body, and facilities where your educational activities are regularly carried on. Submit evidence establishing that you meet these factors, as described below:

  • Evidence that you have a regularly scheduled curriculum includes a list of required courses of study, dates and times courses are offered, and other information about how to complete required courses.
  • Evidence that you have a regular faculty of qualified teachers, includes certifications by the appropriate state authority or successful completion of required training.
  • Evidence of a regularly enrolled student body includes records of regular attendance by students at your facility.
  • Evidence of a place where your exclusively educational activities are regularly carried on includes a lease agreement or deed for your facility.

If you answer “No,” do not complete Schedule B. You do not meet the requirements of a school and you will need to go back to Part X, line 5, to reconsider your public charity status.


I highlighted a few portions to emphasis a crucial point. Most instructors at homeschool organizations do not fit the definition of “qualified” faculty because they are not certified teachers by the state and may not have training in the subject they are teaching. That doesn’t make them unqualified for your purposes; it just doesn’t fit the IRS’s definition of “qualified.”

I do not consider most homeschool programs to be schools.


If homeschool programs are not schools, what are they?

They are educational organizations.

 

Carol Topp, CPA

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What Homeschool Leaders Don’t Know About Tax Exempt Status

 

Carol Topp, CPA, the HomeschoolCPA, will share tips on important issues that homeschool leaders may not know about.

This episode will focus on helping homeschool leaders understand tax exempt status. It’s easier than ever to get tax-exempt status. Should your group apply?

Listen to the podcast

 

Tax Exempt Status for Small Nonprofit Organizations

Contact HomeschoolCPA, Carol Topp, CPA, to arrange for assistance in applying for 501(c)(3) tax exempt status.  This service involves several telephone calls and e-mails.

Carol offers a variety of services:

  •  IRS Streamlined Form 1023-EZ Application
  • Full 501(c)(3) Application
  • Full 501(c)(4) or 501(c)(7) Application
  • State filings
  • Review of Self Prepared Application

Click Here to request more information!

Carol Topp, CPA

HomeschoolCPA.com

Helping homeschool leaders with tax and legal issues

 

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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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IRS 990-N down until January 6 2017

The IRS has announced that their Form 990-N, the ePostcard, online filing system will be will be down from December 26, 2016 at 11:59 a.m. until January 6, 2017 at 1:00 p.m. EST due to an annual planned maintenance.

The IRS apologizes for any inconvenience.

The Form 990-N is due 4 1/2 months after the end of your organization’s fiscal year. Many homeschool groups have fiscal years that end on June 30 or July 31, so their 990-Ns were due November 15 and December 15, respectively.


Don’t know what I’m talking about or what an Form 990-N is? Read my 990-N FAQ page.

What’s a 990-N?

Since 2010, the IRS has required all nonprofit organizations file an annual information return. (All means all except churches) The IRS Form 990-N is a simple, online form that all nonprofit organizations with annual gross revenues of less than $50,000 must file every year. That means your homeschool group (unless you are under the ministry of a church).


 

If you are uncertain about your homeschool organizations tax exempt status, please contact me  for a private phone consultation.

My book The IRS and Your Homeschool Organization will also explain your options to become tax exempt and the required reports for tax exempt organizations.

 

 

Carol Topp, CPA