Tips on filing the IRS Form 1023

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Hi,

Several families and myself have started a brand new homeschool group. Since we are new I am trying to do all the filings myself. I have already filed and been granted the non-profit corporation status for the state of Florida, acquired the EIN number and now I am trying to file for the 501( c)(3) status. Can you advise me on which forms I need to file to obtain the status? I have the 1023 form, but it looks like I need to file one of the schedules.

Thank you for your help.

Caroline H

 

Caroline,

You’re correct that IRS Form 1023 is the application for 501c3 tax exempt status.

Typically homeschool groups do not need to file any of the schedules for the Form 1023. A homeschool group might offer college scholarships and then they fill in Schedule H, but that’s it.

I do not recommend that most homeschool groups file Schedule B Schools, Colleges and Universities. Most homeschool groups do not fit the IRS definition of a school (regularly scheduled curriculum, faculty of qualified teachers, facilities, etc.)

If you wish, I can review your Form 1023 before you mail it to the IRS. I call it “Buying Peace of Mind.” 🙂
Your organization can save money by doing much of the work yourself. I have helped more than 25 homeschool organizations obtain tax exempt status and you can benefit from my experience. Cost: $50/hour for approximately 2 to 4 hours (approximate total cost $100-$200). Time: 1-2 weeks.

BookCoverImageYou might also benefit greatly from my book The IRS and Your Homeschool Organization available in paperback for $9.95 or e-reader format for $3.99
http://homeschoolcpa.com/bookstore/501c3-tax-exempt-status/

Carol Topp, CPA

How much money can a homeschool group keep year to year?

Is there a cap to how much we can keep in our checking account from year to year as a homeschool support group?

No, there is not a cap on how much money a homeschool support group can accumulate.

While it is prudent to have a small surplus to meet future needs, most nonprofits do not accumulate a lot of money year after year. If you have plans for a big event in the future, then it is acceptable to accumulate funds for a few years. But without a reason to be accumulating money, the funds should be spent on your current members (but always keeping a small reserve).

Here’s a rough rule of thumb: If you have more than one year’s income as a surplus (and no plans for the future use of the money), then you should probably make plans to spent some of it on your current members. If you have 2-3 years of accumulation, it’s time to readjust your dues or plan a big party with all expenses paid! 🙂

Having a budget should help you manage how much surplus you carry forward.

Sad but true story: My support group leader realized she would end the year with a surplus, so she threw a very nice catered dinner for all the members and their husbands. It was a lovely date night with babysitting provided!

Unfortunately, the leader drained the checking account and didn’t realize that the annual insurance bill was due in the summer before she had collect dues from the members! Ouch! She had to ask several members to loan the group money in order to pay the bills over the summer.  Good planning, a budget, and carrying a surplus would have avoided her embarrassing situation.

Cover Money Mgmt HS OrgDo you have a copy of my ebook Money Management in a Homeschool Organization?

It might be helpful to you.

 

 

Hope that helps,

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


 

Can my family’s homeschool be a nonprofit?

I see several articles (on your website www.HomeschoolCPA.com) on setting up as a not-for-profit for homeschool organizations (e.g. homeschool co-ops), but I wonder if I could set my own family’s homeschool up as a non-profit. We’re in Texas, so we are considered a private school.
-Lauren in TX

Lauren,
You asked a good question and I’ve been asked it before in different ways. Nonprofit organizations have a lot of benefits including tax free income, discounts, and sometimes pay no sales tax!
I’m not a lawyer, nor familiar with Texas private school laws, but I’ll try to explain how I see things.

Briefly, a nonprofit organization exists to serve a group, not an individual. The IRS will not grant “recognized charity” 501(c)(3) tax exempt status to a group that is formed solely to benefit the founder’s family. A tax exempt organization must serve a public good.

The IRS forbids private “inurement” in 501(c)(3) tax exempt organizations. Inurement means to be beneficial or advantageous. Inurement occurs when an organization is formed or operates with an incorrect charitable purpose that allows individuals in control to profit from the organization. 501(c)(3) organizations can lose their tax exempt status for practicing inurement.

Inurement/Private Benefit – Charitable Organizations

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.
From the IRS website at https://www.irs.gov/charities-non-profits/charitable-organizations/inurement-private-benefit-charitable-organizations

So, in short the answer is no, your family homeschool cannot be set up as a nonprofit organization, even if your state classifies a homeschool as a private school. That’s how I see it.

Carol Topp, CPA

Now, here are my “lawyer words…”
Any tax advice contained in this communication was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

Audits: should your group be doing them?

Hi Carol,

I am looking on your HomeschoolCPA web site for a list of services that you provide.  Our homeschool group is wondering if you offered a service for auditing our books each year to make sure everything is in order?

Debi K

Debi,
Here’s the link to my services: http://homeschoolcpa.com/services/

I can offer to look over your record keeping system and offer recommendations, but I cannot (and will not) do a full audit.

The word audit has  a specific meaning in accounting and it involves an in-depth look at your entire accounting operation. It is very time consuming and expensive ($3,000 and up). I don’t do audits because they require  a staff of people to perform and require a review of my accounting practice by other CPAs, which would cost me at least $1,000.

Instead,  I can offer my consulting services and discuss your records and system of handling your money and make recommendations. That would help your organization quite a bit, but not be a full audit. I’ve done that type of work for homeschool groups before.

Carol Topp, CPA

More nonprofits can file the easy Form 990N

2009 Form 990

Many homeschool organizations that have tax exempt status are small enough they do not have to file any tax forms with the IRS. And now new IRS guidelines mean even more groups are free from IRS filing requirements!

Small exempt organizations can file the simple Form 990-N, the electronic postcard, instead of the longer Form 990-EZ or  Form 990.

For tax years beginning on or after January 1, 2010, exempt organizations may file the e-Postcard if their annual gross receipts were not more than $50,000.  The previous filing threshold was annual gross receipts of no more than $25,000. Gross receipts include every dollar your organization brings in, even if it goes out immediately too.

The e-Postcard is an electronic notice filed at http://epostcard.form990.org.

Need help determining your gross receipts? Send me an email and we can arrange a private consultation over the phone. Email me here.

If your tax exempt homeschool organization needs help filing their Form 990EZ or Form 990, I can help. Read more here.

Would your homeschool group benefit from being tax exempt? Find out by reading my articles on the pros and cons of tax exempt status.

Carol Topp, CPA

What business structure and tax forms are needed for a new homeschool co-op?

Hi,
I am a 15 year homeschooling veteran who started a co-op last fall.  I am now being asked by my church for ‘official’ documents to include:  business status, liability insurance, tax information.  I have a checking account for our co-op.
We offer 30 classes, one day a week, for 5 hours.  Six of the 30 classes are paid classes.  The student gives the co-op ~$2.00 each class.  I write a check to the teacher for $20.00 each time they teach.  The teacher always makes $20.00.  The student pays a varying rate dependant upon how many students are in the class.What business status do I need?

What tax forms am I required to file?
What type of liability insurance do I need if the parents are always on site and never drop off students?
Thank you greatly for the information.
Sincerely,
Lauren T
Lauren,
Good for you for starting a homeschool co-op. I’m sure it is a blessing for many families.Your business status could be a for-profit or a nonprofit. It depends on whether you own and run the co-op  as your businessor whether you have a board to make decisions. It also depends on how you opened up the checking account (although that can be changed). Did you use your personal name and SSN? Then you would be a for profit sole proprietorship.

Or did you organize without a profit motive and assemble a board to lead the group? Then you are a nonprofit.

These articles might be helpful:
Getting an EIN from the IRS
Checklist for new  homeschool organizations.pdf
Choosing a leadership teamThe tax forms depend on your business structure. Sole proprietors report business income on Schedule C of their 1040.

Most nonprofits apply for 501c3 tax exempt status to avoid paying taxes on their surplus.

There can still be a need for insurance, even if parents stay on site. Accidents can happen, damage to property can happen. You might benefit from reading my article on  Insurance for homeschool groups.

Since you are paying teachers, you should read my ebook Paying Workers in a Homeschool Organization. You need to determine their worker status as either employees or independent contractors and be giving them a W-2 or Form 1099MISC showing their wages.
You can learn a lot by listening to a podcast I recorded on Paying Workers.
HS Co-ops Cover_400My book Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out covers a lot of your questions. It is available in print or electronic format. Read more here.I hope that helps!

Carol Topp, CPA

Can a small group be an IRS qualified charity?

In the past week, I have received two emails from homeschool leaders in MD and CA with  a surprisingly similar situations.

In both groups, a small number of homeschooling families were  joining together to hire a single teacher to teach their children once or twice a week. Both groups were very small, only seven families total, but they were paying each instructor quite a bit of money-$11,000 annually in one case and $17,000 in the other. This meant that they exceeded the IRS threshold of $5,000 annual gross revenue and needed to consider filing for 501c3 tax exempt status.

They had several concerns such as a contract with the teacher, how should the teacher be paid and could the group qualify for 501c3 tax exempt status as an educational organization?

Here were some of their questions:

I found your website and found it to be most interesting and helpful to homeschool co-ops.  I would like to schedule a personal consultation with you.  I am part of a homeschool group that informally hired a teacher to teach certain classes in past years, but this coming year the teacher wants a contract.
Rosemary in MD


I saw your website and had some general questions for you.  Appreciate your ministry to homeschoolers. We are trying to decide whether our group should be a sole proprietorship owned by person or try to establish a nonprofit. What would be the pros and cons of each? What if we can’t afford to file for tax exemption at this time?  What are our choices if our gross receipts are around $11K/year?
Teri in CA

There are several options for homeschool organizations who are trying to decide how to structure themselves. I advised the leader from CA to read this article:

When to become a 501c3?

I offered a private phone consultation and discussed the concerns and options with the leader from MD. I explained that I doubted the IRS would grant 501c3 “qualified charity” status to a group with only seven families. An IRS qualified charity is supposed to serve a public good, not the needs of only seven families.

Instead of pursuing 501c3 tax exempt status, we discussed that the hired teacher is really running a for-profit business (a sole proprietorship) with seven families as her customers. I shared with her several sample contractor agreements the teacher could use in her business.

There is a sample contractor agreement available in my ebooks Money Management in a Homeschool Organization and Paying Workers in a Homeschool Organization.

Thank you again for the consultation.  It answered a lot of questions for me, and I appreciate your support. Thank you also for the contractor agreements – I have been reading through them.
Rosemary in MD

If you have a unique homeschooling situation and would like to schedule a private consultation with me, please send me an email at Carol@HomeschoolCPA.com. Tell me a little about your group and we can arrange a mutually convenient time to talk.

Carol Topp, CPA

Audits for small nonprofits are rarely needed

paperwork

Dear Carol:

Our organization was organized last year. It is a non-profit group that was designed to offer homeschool sports to our local homeschool athletes.

In January we received our 501c3 status as a non-profit group. It is time for our annual audit, but I am not sure which way to go now and who to get to do the audit.

I used an excel spreadsheet to do our check register.

Any help or suggestions that you could offer would be greatly appreciated.

Sincerely,

Nikki D

Nikki,

Congratulations on obtaining your 501c3 status.  that’s a huge accomplishment!

I’d be happy to help you in any way that I can. You mentioned your “annual audit.”  Does your organization really need an annual audit?  An audit has  a specific meaning in accounting and it involves an in-depth look at your entire accounting operation. It is very time consuming and expensive ($3,000 and up). Since you said that you keep your records on an Excel spreadsheet, I assume that the record keeping is pretty simple. So, that makes me wonder if you mean an “audit” or something else, like just filing your annual information return with the IRS.

Carol Topp, CPA

Follow up: Nikki sent me the bylaws for her organization and I made some recommended changes, gave her some financial practices to follow and suggested she consider doing an internal audit.

Some small nonprofits and churches do an internal audit annually or every other year. An internal audit goes beyond the financial practices I recommended, but it is not as extensive as a full audit. Internal audits are performed by people within the organization. They check accounting records for compliance with the financial practices.

The following website explains internal audits for small churches and nonprofits:
http://www.freechurchaccounting.com/churchaudit.html

It also contains a checklist for conducting an internal audit:
http://www.freechurchaccounting.com/support-files/internalauditchecklistguidelines.pdf

Homeschool Leader, Do You Need Help?

I know that being a homeschool leader is not an easy job.  You have taken on extra responsibilities in addition to homeschooling your own children. But help is on the way!

I am so pleased to announce several ebooks and audios for homeschool leaders are now available


A 39 page ebook covering money management for small, medium and large sized groups. Sample forms and examples of financial statements in clear English are provided. Also covered are topics such as using Quickbooks, collecting fees, creating a budget, insurance, and hiring paid teachers. All written specifically for homeschool groups.
Price: $10.00 (immediate download as a pdf file)
Read more and order here

A 51 page ebook explaining the pros and cons of tax exempt 501c3 status. Is it needed? Is it worth it? Also covered are non profit incorporation, the application process, and how to maintain tax exempt status. Written specifically for homeschool groups.
Price: $10.00 (immediate download as a pdf file)
Read more and order here

A  62 page ebook containing some of the most frequently asked questions from homeschool leaders on the IRS, nonprofit and tax exempt status, boards, conflict, money, fund raising, volunteers, paying workers and insurance.
Price $8.00 (immediate download as a pdf file)
Read more and order here

A 20 page ebook that covers paying workers as employees or independent contractors.  Includes sample forms, tips and advice to help you pay workers in accordance with the IRS laws. Written specifically for homeschool organizations.
Price: $7.00 (immediate download as a pdf file)
Read more and order here

Are You Ready? Tax Exempt 501c3 Status for Homeschool Organizations

audio download
An hour-long audio that explains the advantages of 501c3 tax exempt status for your homeschool group. What’s involved, what will it cost and is it worth it? All specifically for homeschool groups.
Price: $7.00 includes a file of the presentation slides
Read more and order here

An hour-long audio that explains the importance of boards, budgets and bylaws in a homeschool organization. Get your group set up correctly and running smoothly. All specifically for homeschool groups.
Price: $7.00 includes a file of the presentation slides
Read more and order here


I hope you find these ebooks and audios helpful as you run your homeschool organizations.
Carol Topp, CPA