Inurement: a funny word the IRS doesn’t like!

The IRS uses an unusual word that most of us don’t know the meaning of: inure or inurement. Here’s how the IRS uses it in their definition of a 501(c)(3) tax exempt organization:

A section 501(c)(3) organization must not be organized or operated for the benefit of private interests, such as the creator or the creator’s family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. A private shareholder or individual is a person having a personal and private interest in the activities of the organization. (emphasis added)

Source: https://www.irs.gov/charities-non-profits/charitable-organizations/inurement-private-benefit-charitable-organizations

What does inurement mean?

“Inurement” means “benefit.”  The IRS forbids a tax exempt organization to use its income or assets to directly or indirectly benefit an individual, a person with a close relationship with the organization or a person who is able to exercise significant control over the organization. These can be board members or donors.

Jeramie Fortenberry an attorney, gives an excellent explanation of inurement in his website article “The Inurement Prohibition & Non-Profit Organizations.”

Non-profit organizations are subject to what is known as the nondistribution constraint.  Simply stated, this means that non-profit organizations cannot distribute profits to those who control it.  The nondistribution constraint is the fundamental distinction between non-profit organizations from for-profit organizations.  (emphasis added)

Any time assets of the organization flow through to benefit the organization’s insiders, whether directly or directly, inurement is an issue.

What are some examples of inurement?

  • A nonprofit executive used the organization’s money to pay his child’s college tuition, lease a luxury car for his wife, have his kitchen remodeled, and rent a vacation house at the beach.
  • The CEO at a tax-exempt hospital used charitable assets to pay for personal items such as liquor, china, crystal, perfume, an airplane, and theater tickets.
  • A nonprofit art gallery exhibits artwork created by its members for a fee but grants board members the same service without cost.
  • The nonprofit organization’s sole activity is conducting seminars and lectures based on the program owned by its president and his for-profit company.
  • An educational organization had four board members who voted themselves free tuition to the program for their children. This benefit ranged from $2,000-$4,000 per board member per academic year.

Sources: https://www.nolo.com/legal-encyclopedia/what-is-private-inurement.html and https://boardsource.org/resources/private-benefit-private-inurement-self-dealing/ and https://www.forpurposelaw.com/the-private-benefit-rule-three-more-examples/

What happens if a nonprofit practices inurement?

I would hope inurement would never happen in a homeschool group, by Mr. Fortenbury discusses the IRS’s options against a nonprofit organization.

The inurement restriction is absolute: An organization that violates this prohibition will not qualify (or will cease to qualify) for tax exemption.

In cases involving inurement, the IRS may impose the penalties in lieu of or in addition to the revocation of tax exempt status. 

This system effectively gives the IRS two options to enforce the nondistribution constraint.  In blatant violations of the inurement prohibition, the IRS can both revoke tax exemption and impose monetary penalties under the intermediate sanction regimes. In less severe cases, the IRS may seek to correct the situation through intermediate sanctions alone.

For the full article visit: https://www.fortenberrylaw.com/inurement-prohibition-nonprofit-organizations,

 

So, please homeschool leaders, stay away from inurement (giving benefits or the assets that belongs to the nonprofit) to any insiders (those who exercise control over the organization).

We’re homeschoolers and we’re better than that.

Carol Topp, CPA

Making Sure Your Nonprofit Organization is Compliant

 

A lot of homeschool leaders ask me,

“What do I need to do after my homeschool gets nonprofit or tax exempt status?”

They are asking about being compliant with the laws of our land, both federal and sate.

This article Making Sure your Nonprofit Organization is Compliant from MoneyMinder.com has a great article that explains compliance in these areas:

Tax Exempt Status which includes federal income tax exempt granted by the IRS, and sales tax exemption from your state. Your nonprofit may even be eligible for property tax exemption if your own a building. The laws on sales tax and property tax exemption vary by state.

My article explains the IRS filing requirements Do You Know About Required IRS Filings? for tax exempt organizations.

Register with the State Registration laws vary from state to state but most require you to confirm your active status (especially if you are formed as a nonprofit corporation), contact information, mailing address, and name of board members. This reporting is usually to the Secretary of State’s Office.

Charitable Solicitations
Many states ask that you register before actually asking for donations or fundraising. This registration is usually to the Attorney General’s office in your state.

Donation Receipt Requirements
A donor should be given a receipt for any single contribution of $250 or more. The article gives more details on what your donation receipt should say.

 

To research what your state compliance requirements are visit this helpful website

https://www.harborcompliance.com/information/nonprofit-startup-guide.php

If you wish, I can research your state’s requirements and compose a letter explaining what you should do next for filing in your state. I will charge $50 for the research and letter. Just let me know if I can help you in this way.

 

I hope that helps you know what it takes for your homeschool nonprofit to be compliant in your state and with the IRS.

 

Carol Topp, CPA

HomeschoolCPA.com

FAQ on Property Tax for Churches Hosting Homeschool Programs

FAQ on Property Tax for Churches Hosting Homeschool Programs

By Carol Topp, CPA         HomeschoolCPA.com

Last update April 5, 2019

For a easy-to-print pdf version click here.

Many homeschool groups use churches for their educational programs. These groups are grateful to the churches for allowing homeschoolers to use their building, sometimes without charging rent.

But some homeschool programs are organized and operate as for-profit businesses and that could threaten the church’s property tax exemption. Churches are granted property tax exemption by their states for conducting religious activities or worship services. In most states, a church cannot let their building be used for activities with a “view to profit” or for “pecuniary gain” (gain of monetary value) or the church could lose part or all of its property tax exemption.

 

Here are some frequently asked questions about property tax, churches and homeschool groups.

If my homeschool group is a nonprofit organization, can we use the church building?

Yes, probably. Nonprofits, especially those with a religious purpose, do not have a “view to profit” or engage in activities for “pecuniary gain,” (those phrases are used in several state statues regarding property tax exemption) so they may use church property without posing a threat to the church’s property tax exemption.

What if my business doesn’t make a profit?

The property tax exemption is based on the use of an exempt property (i.e., the church building) by a for-profit business. Exemption is not based on the profitability of the business entity using the church’s property.

If I don’t make a profit from my business, I’m a nonprofit then, right?

No. An organization is only a nonprofit if it is organized (with a board, bylaws, etc.) and operated (with a religious, educational, or charitable purpose) as a nonprofit. What you are is an unprofitable business, but not a nonprofit organization.

I’m not a business; we’re just a bunch of moms gathered together to educate our children.

If you received money and in return offered a service (such as educational classes), then you are operating a business. You are not “just a bunch of moms.”

What if my business doesn’t pay rent to the church?

It is commonly assumed that if a church does not charge rent to a for-profit business, then no income tax would be owed by the church. That is usually correct and refers to unrelated business income tax (UBIT). No income, therefore no income tax to pay.

But income tax and property tax are two separate taxes. The property tax exemption is based on use of the church’s real and personal property, not on any income the church receives from rental activities. Therefore, the fact that a church is generous and does not charge rent to the business owner using the church building, does not change the fact that the church’s property tax exemption is at stake.

Renting out space could incur unrelated business income tax (UBIT). The IRS assesses UBIT on churches and all 501(c)(3) tax exempt nonprofits if they receive income from conducting a business unrelated to the church’s religious purpose. If a church rents space to a for-profit business, the church is conducting a business and may be required to pay UBIT. There are several exceptions to UBIT, so the church should discuss the issue with their CPA.

What if my business gives a love offering or donation to the church?

Calling what you give to the church a “donation” or “love offering” is a simply renaming the payment. Calling your payment a donation does not change the fact that you are giving money to the church in exchange for use of its space. Even if the church does not bill you, it is payment for use of space and not a donation. Be honest. Call it what it is: rent.

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:  https://www.wkpz.com/content/files/Use%20of%20Church%20Facilities%20by%20Outside%20Groups.pdf

Will the church lose its 501(c)(3) tax exempt status for hosting a for-profit business?

The church has 501(c)(3) tax exempt status as a religious organization and probably also charitable and educational purposes as well. As long as the church’s activities are exclusively religious, charitable, and/or educational, their 501(c)(3) status is not in jeopardy. But two other issues need to be considered: inurement and unrelated business income tax (UBIT).

The church could lose its 501(c)(3) tax exempt status if they practice inurement. Inurement means “benefit” and includes the transfer or use of property to insiders for less than fair market value. The IRS forbids a 501(c)(3) tax exempt organization to use its income or assets to directly or indirectly benefit an individual, a person with a close relationship with the organization, or a person who is able to exercise significant control over the organization. These “insiders” can be board members or donors and would also include the pastor, leaders, elders, deacons, trustees, and staff and their family members.

Here’s the IRS definition of inurement:

A section 501(c)(3) organization must not be organized or operated for the benefit of private interests, such as the creator or the creator’s family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. A private shareholder or individual is a person having a personal and private interest in the activities of the organization.

Source: https://www.irs.gov/charities-non-profits/charitable-organizations/inurement-private-benefit-charitable-organizations

For example, the spouse of a pastor operating his or her for-profit business on the church’s property could threaten the church’s 501(c)(3) tax exempt status because the church may be guilty of inurement.

Inurement is a very serious matter and the IRS has revoked the 501(c)(3) tax exempt status from churches for practicing inurement.

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

Property tax and unrelated business income tax are two separate taxes. Property tax is determined by state laws and administered by local county government. It is an ad valorem tax, meaning based on value. An ad valorem tax is based on the assessed value of an item such as real estate or personal property.

UBIT is determined and administered by the IRS at the federal level. It is a tax based on income, specifically business income unrelated to the exempt purpose of the tax exempt entity. Most churches strive to avoid UBIT and many have policies prohibiting for-profit businesses to rent or use the church’s property to avoid UBIT.

My business has a religious purpose. I’m a Christian, we pray before classes and quote Bible verses. So I fit the religious purposes of the church, right?

Having a religious faith or conducting religious activities such as prayer, Bible teaching, etc. does not mean your business has an exempt religious purpose. As a business, your purpose is to make a profit. Many state statues regarding property tax exemption are specific on what type of entities can claim the religious exemption.

What if the church knows I’m operating a for-profit business and doesn’t mind or doesn’t care?

It is quite rare for a church to knowingly allow a for-profit business use their facilities. The church is putting itself at risk of losing part or all of its property tax exemption. The church may be ignorant of their state’s prohibition against using their tax-exempt property to conduct for-profit activities. Or you may have misrepresented the true nature of your business. Or you may have spoken with a pastor and not the church’s business administrator or board of trustees, who are more aware of the legal and financial matters of the church.

What if my homeschool program is a nonprofit but I hire my teachers/tutors as Independent Contractors? (added April 5, 2019)

Many small nonprofits desire to avoid the hassles of employees and payroll, but hiring workers who provide the key activity of the nonprofit’s purpose (education in the case of a homeschool program), means that these individuals are still conducting their for-profit businesses on the church’s property. That could still threaten the church’s property tax exemption. An educational nonprofit should treat workers (i.e., teachers or tutors) providing the key activity of their nonprofit (education) as employees.

Other workers such as a website designer or outside bookkeeper, who do not provide the primary or key services of the nonprofit, can be treated as Independent Contractor without threatening the church’s property tax exemption.

What if my business is an LLC (Limited Liability Company)?

A single-member LLC taxed as a sole proprietorship is still a for-profit business. If you regularly conduct your for-profit business on the church’s property, it could threaten the church’s property tax exemption.

Isn’t it the responsibility of the church to ask if my homeschool program is a for-profit business?

It is quite unusual for a church to let a for-profit business use their facilities, so they may not have even thought of asking. The church may be ignorant of their state’s prohibition again using their tax-exempt property to conduct for-profit activities. Additionally, you may have misrepresented yourself as “just a bunch of moms” or as a homeschool groups and not disclosed the for-profit nature of the business. You bear responsibility for disclosing the true nature of your business to the church.,

My church houses a bookstore/coffee shop/Weight Watchers, etc.? How is that legal but my homeschool business program is not?

These examples may be for-profit businesses operating in a church and may threaten the property tax exemption of the church. Alternately, the church may be paying property tax on the portion of the building being used by the businesses (if their state allows partial nonexempt use).

How do I know what my state laws say about property tax exemption for churches?

Do an internet search on property tax exemption and your state. Or search this pdf file (466 pages long) from The Civic Federation. https://www.civicfed.org/file/4794/download?token=3ifCi8dI. It lists the property tax laws or each state. After you do a search for state laws, call your local county tax assessor. The state sets the laws, but the local assessor applies the law to specific situations. Ask the assessor about business use of a church’s building affecting property tax exemption.

Our church pastor/deacon/elder’s spouse is the business owner. Is that a problem?

It could be. The church’s 501(c)(3) status makes them exempt from federal income tax and usually state income tax as well. Hosting a for-profit business does not typically threaten the church’s 501(c)(3) tax exempt status, but if the for-profit business is owned by a church “insider” or family member of an insider, the church could be guilty of inurement and that may threaten their 501(c)(3) status. Prohibited inurement includes the transfer or use of property to insiders for less than fair market value.

Aren’t the churches making a big fuss over nothing?

Maybe not. Read this story about a church in Miami, FL that was assessed a $7.1 million dollar property tax bill for conducting a for-profit school on their church property.

https://www.miamiherald.com/news/business/real-estate-news/article222993435.html?fbclid=IwAR2Ehjdp7kYjJQFeJHipP_wBKMXhJfc3U33vi0SNwwBMkqtzudi_dSryE9g

The facts in this case are different from most homeschool programs, but a tax assessor can levy a tax lien against a church for conducting a for-profit business (in this case a Christian school) on the church’s property.

What should I do if I am the business owner?

  • Become informed about the limits on business activities conducted by churches in your state’s property tax exemption laws. This document may help you start your research:https://www.civicfed.org/file/4794/download?token=3ifCi8dIThis pdf file is 466 pages and lists the state statuses for every state. Then do an internet search “YOUR STATE nonprofit property tax exemption” or “YOUR STATE church property tax exemption.”
  • Call the government agency responsible for assessing property tax. In most states that is your local county property tax assessor. In other states, it may be the state department of revenue.  Ask the person with the knowledge and authority to assess property tax, “Can a church let a for-profit business use the church’s building on a regular basis without harming our property tax exemption?” Ask for an assessment to be conducted and an estimate of the property tax to be calculated. Request a written report of their findings and opinion, especially of the county tax assessor declares there is “no problem.” Determine if your business can afford to pay the property tax bill. (expanded to clarify the proper agency to contact on April 5, 2019)
  • Talk to your host church about this issue. Ask what they know about limits on business activity for churches in your state.
  • Consider looking for a location that is not a church or other property tax exempt nonprofit organization.
  • Consider converting your business to a nonprofit organization with a religious and educational purpose. That involves forming a board to operate the program, drafting bylaws, etc. It takes time and money, but then the nonprofit organization could use the church’s space without being concerned about threatening the church’s property tax exemption.
  • Seek competent legal advice on your business’ use of church property regarding property tax exemption, UBIT, and inurement.

What should I do if I am a church leader/pastor/elder, etc.?

  • Call the government agency responsible for assessing property tax. In most states that is your local county property tax assessor. In other states it may be the state department of revenue. Ask the person with the knowledge and authority to assess property tax, “Can a church let a for-profit business use the church’s building on a regular basis without harming the church’s property tax exemption?” Ask for a written assessment to be conducted and an estimate of the property tax to be calculated. Request a written report of their findings and opinion, especially of the county tax assessor declares there is “no problem.” (expanded to clarify the proper agency to contact on April 5, 2019)
  • Cease offering space to for-profit businesses. Draft a policy prohibiting the use of the church’s property by for-profit businesses on a regular, continual basis.
  • Continue being generous, especially to nonprofit homeschool groups.
  • Explain to the business owner that she can convert her for-profit business to a nonprofit organization with a religious and educational purpose. It involves giving up control of her business activities to a board, drafting bylaws, incorporating as a nonprofit with the state, etc. It takes time and money, but then the nonprofit organization could use the church’s space without being concerned about threatening the church’s property tax exemption.
  • Ask anyone desiring to use the church’s space if they are a nonprofit organization and perhaps ask for bylaws, Articles of Nonprofit Incorporation, or the IRS 501(c)(3) determination letter as proof of their nonprofit status and religious purpose.
  • Seek competent legal advice on use of your church’s property regarding property tax exemption, UBIT, and inurement.

 

 

 

The IRS is on the prowl in 2019!

Every year the IRS Tax Exempt division releases a list of areas and issues they plan to focus on for audits and investigations. The IRS Tax Exempt division calls it their Program Letter. The Exempt Division is the branch of the IRS that grants 501c tax exempt status to nonprofit organizations.

The Charity Law blog discussed the IRS Tax Exempt work plan for 2019.

 

I found the list of things the IRS considers “the highest known priority and emerging risks” to be interesting, especially these two issues that affect homeschool programs, both nonprofit and for-profit:

  • Previous for-profit: focus on organizations formerly operated as for-profit entities prior to their conversion to IRC Section 501(c)(3) organizations.
  • Worker classification (misclassified workers): determine whether misclassified workers result in incorrectly treating employees as independent contractors.

 

So if you are converting a for-profit homeschool business to a nonprofit organization, be prepared for some extra questioning and scrutiny from the IRS. You’ll have to file the longer Form 1023 to apply for 501c3 tax exempt status and explain in your Narrative why you are converting to nonprofit status. You will not be eligible for using the shorter IRS Form 1023-EZ.

 

My book, The IRS and Your Homeschool Organization  explains how to apply for 501c3 tax exempt status.

 

 

 

 

 

Additionally, if you are treating your homeschool program teachers or tutors as Independent Contractors, be prepared for the IRS to keep an eye on you and they may open an investigation into your worker classification.

 

 

My book Paying Workers in a Homeschool Organization will be a big help to you in paying workers.

 

 

 

Additionally, the IRS is hiring approximately 40 new revenue agents to process determination applications. Is that good news? More IRS revenue agents should mean both faster processing and increased audits and investigations! Both good and bad, in my opinion.

Carol Topp, CPA

HomeschoolCPA.com

 

Homeschool support group asks what tax forms to file

 

Hi- I am the leader of a homeschool support group and self declared 501c7. We are not a co-op and only do field trips and park days. We do collect yearly dues to help cover pool rental, field day, etc. We also have about 25 families and have under $300. What tax form do we fill out?

-Rhonda

 

Rhonda,

I believe you told me that your bank balance is $300, but the IRS  uses your total revenues (all the money that came in), not your balance (or profit) to determine what forms tax exempt organizations should file.

If you are a self-declared 501(c)(7) social club with total revenues under $50,000 per year, you should file the IRS Form 990-N every year.

The 990-N is a short, online form that the IRS calls an electronic postcard. It will only take 10-15 minutes to complete.

It is due 4 1/2 months after the end of your fiscal year. It is not due April 15 like individual tax returns.

You will have to call the IRS to get added to their exempt organization database.

This will help: How to get added to the IRS database and file the Form 990N

 

Additionally, there may be forms to file in your state.  Here’s a resource I use to research what each state wants HarborCompliance.com/information/nonprofit-compliance-guide

I hope that helps,

 

Carol Topp, CPA

HomeschoolCPA.com

Top tax mistakes homeschool business owners make

I’ve talked to a lot of homeschool (for-profit) program directors over the past few years. These people have a huge heart for homeschooling, but many do not understand that when they start their programs, they began operating a business. They don’t see themselves as business owners (but they are!), and so they neglect getting educated about running a business and make a lot of mistakes.

Here are the top tax mistakes I see homeschool for-profit directors make:

  1. Giving themselves a 1099-MISC.
  2. Not understand that they are business owners.
  3. Paying tutors as Independent Contractors but treat them as employees.
  4. Not understanding their tax obligations.
  5. Not being prepared for self-employment tax.
  6. Not being aware of potential penalties for worker misclassification.
  7. Not keeping good records.
  8. Not seeking professional advice before signing an agreement or launching a program.
  9. Not getting tax advice.
  10. Asking Independent Contractors or employees to volunteer their time. That is Illegal in most states.
  11. Not realizing fundraisers are taxable income.
  12. Thinking they can form a nonprofit by filing a piece of paper but not forming a board or drafting bylaws.

I explain a lot of these tax mistakes in my webinar on Tax Preparation for Homeschool Business Owners. It should be a lot of help to for-profit directors, tutors, co-op teachers and other homeschool business owners! For details visit HomeschoolCPA.com/HSBIZTAXES

 

Additionally my book on  Paying Workers in a Homeschool Organization  explains in detail why tutors should be paid as employees and the risk a homeschool business owner is taking if she pays her teachers or tutors as Independent Contractors.

 

I’m not trying to scare anyone!  Sorry if I did, but maybe it will compel you to change your actions.

I’m not trying to talk you out of being a homeschool business owner, director of a for-profit program, or tutor if you love it.

But I am trying to help you stay out of trouble with the IRS and your state government.

The last thing I want is an audit of homeschool programs or businesses by the IRS or state governments! No one wants the reputation of homeschooling tainted in the eyes of our government. We don’t need that!

 

Carol Topp, CPA

HomeschoolCPA.com

Helping homeschool leaders

New tax deduction for homeschool teachers and tutors in 2018!

Congratulations homeschool business owners which may include homeschool co-op teachers, directors and tutors! There is a new tax deduction that you are (probably) entitled to take on your 2018 tax return!

It’s called the Qualified Business Income (QBI) Deduction.

The QBI tax deduction is equal to 20% of your profit from a “qualified business.”

Tutoring and teaching are both a “qualified businesses” if operated as anything except a C corporation.

If your taxable income is less than $157,500 for a single person or $315,000 for married filing joint, you can claim the 20% QBI tax deduction (even if you are one of the not qualified businesses I listed). If your income is more than those thresholds, your deduction will be phased out.

There are some additional restrictions and complications, especially if your business is an S Corporation, pays wages to employees, or if you have several businesses. So consult your tax professional if those situations apply to you.

 The Qualified Business Income Deduction is found on Line 9 of the 2018 Form 1040. so look for it!

Your tax prep software may not calculate the deduction automatically; you may have to answer some questions to trigger the deduction.

This deduction is for business owners, but not for employees.

Need more help preparing your tax return for 2018 this year?

There is a lot to learn about running a business. I don’t mean to discourage you or anyone else away from operating a homeschool business. You provide a valuable service to homeschool families! I am offering this webinar to help you understand the tax implications:

Carol, thank you again for the webinar. It was one of the BEST webinars I’ve EVER attended. If you do hold another one, I would pay for it hands down.  Totally worth the $10! -Denise, webinar attendee

“I actually don’t care for webinars at all – it is not my learning style at all and I struggle to focus, but this one was extremely value and had my attention”. -Mary, webinar attendee

The webinar was recorded and you can access the recording and slide handout at HomeschoolCPA.com/HSBIZTAXES for a small fee of $10.

Carol Topp, CPA
HomeschoolCPA.com
Helping homeschool leaders

How does the new tax law changes affect homeschool teachers and tutors?

There were a lot of changes to the US taxes in 2018 and the IRS re-designed the Form 1040, so tax preparation in 2019 will be very confusing.

Here are some highlights of the tax law changes that affect homeschool business owners and that includes (nonemployee) teachers at a homeschool co-op, owners of for-profit homeschool programs, and tutors.

Yes, teacher and tutors are business owners! If you accept payment and offer a service (like a class), you are in business and are a business owner. If you teach or tutor as an Independent Contractor, you have a tutoring business!

 

Highlights of Tax Changes in 2018

  •  No more exemptions for each family member. This may hurt large families.
  •  Standard deduction increased to $12,000 S/$24,000 MFJ
  •  Child Tax credit increased to $2,000/child
  •  New Qualified Business Income deduction
  •  New tax forms: 1040 “postcard”
  •  Lower tax rates (12% for most of us)

 

The new Qualified Business Income deduction will help homeschool business owners. You’re going to love it!

The deduction is equal to 20% of your profit from a “qualified” business (sole prop, partnerships, S corp)

If your Taxable Income less than $157,000 Single or $315,000 Married Filing Joint, your business is “qualified.”

Look for this Qualified Business Income deduction on new re-designed Form 1040 Line 9

 


There is a lot to learn about running a business. I don’t mean to discourage you or anyone else away from operating a homeschool business. You provide a valuable service to homeschool families! I am offering this webinar to help you understand the tax implications:

I recorded a webinar on Tax Preparation for Homeschool Business Owners. It should be a lot of help to tutors, non-employee co-op teachers and other homeschool business owners! You can watch the recording at HomeschoolCPA.com/HSBIZTAXES for a small fee of $10.

Carol, thank you again for the webinar. It was one of the BEST webinars I’ve EVER attended. If you do hold another one, I would pay for it hands down.  Totally worth the $10! -Denise, webinar attendee

“I actually don’t care for webinars at all – it is not my learning style at all and I struggle to focus, but this one was extremely value and had my attention”. -Mary, webinar attendee


I hope that helps,

Carol Topp, CPA

HomeschoolCPA.com

Helping homeschool leaders

Are my homeschool co-op fees a tax deductible donation?

I’m a homeschool parent and member of a homeschool co-operative that weeks weekly. I have to pay tuition to this group for the classes my children take there. Can my children’s tuition for the co-op be a tax deduction?

 

I assume you mean deductible as a charitable donation.

Co-op fees are not a tax deductible charitable donation because services (co-op classes for your children) were received in return for the tuition payments. Tuition payments are not a tax deductible donations.They are personal expenses and are not tax deductible.

But if a parent makes a charitable gift to the homeschool group (assuming it has 501c3 tax exempt status from the IRS) above and beyond the tuition and fee payments, then this amount would be a tax deductible donation.

Some homeschool parents ask if co-op fees can be deducted as childcare expenses. My reply is “usually not” and here are the details: Are homeschool co-op fees child care tax deductions?

 


Did you get paid for teaching at a homeschool program? You may have questions about your taxes? I offer webinar to help you understand the tax implications of being a paid homeschool co-op teacher or tutor:

I recorded a webinar on Tax Preparation for Homeschool Business Owners. It should be a lot of help to tutors, non-employee co-op teachers and other homeschool business owners! You can watch the recording at HomeschoolCPA.com/HSBIZTAXES for a small fee of $10.

Carol, thank you again for the webinar. It was one of the BEST webinars I’ve EVER attended. If you do hold another one, I would pay for it hands down. Totally worth the $10! -Denise, webinar attendee

“I actually don’t care for webinars at all – it is not my learning style at all and I struggle to focus, but this one was extremely value and had my attention”. -Mary, webinar attendee


I hope that helps!

Carol Topp, CPA

HomeschoolCPA.com

Helping homeschool leaders

Homeschool business owner under reporting her income

I’m a leader of a small, for-profit classical homeschool program. I have only been recording the amount that I retain after I pay my tutors on my tax return. After reading your website and FB comments, I’m confused. Why do I have to claim all of the money even though I don’t keep it?

-S

 

Dear S,

You, as a business owner, must report all your income om your tax return. Additionally, you can deduct business related expenses, like paying your tutors, insurance, rent, etc.

You asked, “Why do I have to claim all of the money even though I don’t keep it?
Good question!

Short answer: It’s the law. The IRS requires business owners to report ALL their income. Then the business owner shows the IRS all their business-related expenses. The difference is profit and that’s what business owners pay taxes on (and get to keep).

Longer answer: By showing your total income from your business and all your business-related expenses, you prove to the IRS that your business had little or no profit. The IRS won’t take your word for it that your didn’t “keep it.” They want proof of how much profit you had and you give the proof by filling out the numbers on the tax form (Form 1040 Schedule C for businesses).

On your tax form (Schedule C) you should have answered this question: Did you make payments that require you to file Form 1099? with a YES, because you paid your tutors as 1099 Independent Contractors and gave them each a 1099-MISC (I assume).

Then further down on the Schedule C you can deduct what you paid those tutors on Line 11 Contract Labor (or Line 26 Wages if they are employees). Then you can also show any other expenses like insurance, office supplies, etc.


It is not my intention to scare you or anyone else away from operating a homeschool business. You provide an essential service to homeschool families, so don’t stop, but you do need to understand the legal and tax implications, so I am offering this webinar to help:

On Monday January 21, 2019 at 8 pm I will be giving a live webinar on Tax Preparation for Homeschool Business Owners.  The webinar is free for the live version. For details visit HomeschoolCPA.com/HSBIZTAXES


If you did not prepare your tax return this correct way, you may need to amend your prior years’ tax returns, especially if you failed to report all of your income. You can amend up to 3 prior years. The IRS can fine taxpayers for under-reporting income. They take that very seriously!

But if you correct prior year tax returns now, the IRS usually waives any fines and penalties.
You may not owe any additional tax, so don’t panic!. I cannot tell if you will owe more tax (or get money back!) until I would see your tax return and recalculate your Schedule C.

Did you prepare the tax return yourself or use a professional tax preparer? If you used a professional tax preparer, go back to him/her with all your records for the past 3 years and see what they recommend that you do.

 

I hope that helps!

Carol Topp, CPA
HomeschoolCPA.com