Used curriculum sales and taxes

When a homeschool group has a fund raiser like a used curriculum sale or mini-exhibit hall is the income taxable?
Thanks,
Dorothy
Dorothy,
Fundraisers are usually considered unrelated business income, meaning that the fundraiser activities are not related to your organization’s tax exempt purpose. In other words, a homeschool group’s purpose is education, not selling curriculum or hosting an exhibit hall.

 

Unrelated business income is taxable income. It’s called UBIT-unrelated business income tax.

 

From the IRS: Unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization’s exemption. An exempt organization that has $1,000 or more of gross income from an unrelated business must file Form 990-T (and pay federal income tax).

 

Fortunately, the IRS has several exceptions to paying the UBIT tax:

  • A $1,000 threshold allows that the first $1,000 in gross revenues from an unrelated business will not be taxed.
  • If the fundraiser (or unrelated business) is run by volunteer efforts (i.e., no paid staff) then the proceeds are not taxed.
  • If the fundraiser is not regularly carried on, such as a once-a-year unsed curriculum sale, then the proceeds are not subject to UBIT.
  • If you are selling donated items, like in a garage sale, the income raised is not taxed.

One of these exceptions are bound to apply to most homeschool organizations.

So, while the income from an unrelated business activity may be taxable, in reality, no tax will be paid because one of the exceptions mentioned above applies.

 

Carol Topp, CPA

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IRS amnestry program for employers (how to avoid penalties for paying workers as Independent Contractors)

You may have heard about the IRS crackdown on misclassifying workers and the penalties that your business or homeschool program could face if  your business is audited by the Internal Revenue Service (IRS). For a true but sad story about the Landry Academy read this.

What can you do to avoid the IRS penalties?

The IRs has a program called the Voluntary Classification Settlement program (VCSP) .

Eva Rosenberg, the Tax Mama, explains the IRS Voluntary Classification Settlement Program in plain, clear English. Just the way your mama would talk to you.

The VCSP (aka the IRS amnesty program) allows employers to avoid the penalties for paying your workers as Independent Contractors when they should have been paid as employees.

IRS Amnesty Program? Yes There IS an Employer Amnesty Program

Eva explains,

For those employers who do apply for the VCSP, the savings can be substantial. For example, take a calculation based on unreported payroll of $625,000 in the prior year. Under the amnesty, the full payment to the IRS would be under $6,600. Without the amnesty, with the IRS looking back for only three years, it would cost the employer over $292,000 (for six years, over $620,000).

I can help you determine if the IRS amnesty program is a good option for your homeschool business or nonprofit organization. Contact me and we can talk about your options.

One homeschool group leader decided to apply for the IRS amnesty program and convert her tutors to employees. She said, “For $145 (her fee to the IRS), I can sleep better at night knowing the IRS won’t audit me or make me pay a penalty.”

Carol Topp, CPA

Helping homeschool leaders

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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:

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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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Tax return for a Classical Conversations homeschool business

We are a new Classical Conversations community set up as a single member LLC. We only had 2 students and so my tutor’s income was below the requirement for filing 1099s. Same for me. However, I saw that I shouldn’t be filing a 1099-MISC for myself. What should I be doing?

And what is considered profit for a CC community?

Esther

 

Thank you for emailing me your question about taxes and your Classical Conversations (CC) business.

As a single member LLC, you are a sole proprietorship and you report your income and expenses from your CC business on a Schedule C Profit or Loss from Business as part of your Form 1040.

All your income from the tuition and fees charged to your customers (i.e. parents) goes on line 1 Gross receipts or sales. In this example the total income is $4,500.

Your payment to your teacher(s) goes on Line 11 Contract Labor.  In this example a total of $2,250 was paid to independent contractors. Other expenses go in the categories listed in Part II of the Schedule C. Other expenses made the total expenses sum to $2,982 as shown on Line 28.

The profit is shown on Line 31> It is calculated  from Gross Income (Line 7 on the form) minus Expenses (Line 28). The profit is what you get to keep (and pay taxes on!) as the business owner. In this example the profit is $1,518. This amount will carried forward to the first page of the Form 1040 to Line 12 Business income or loss.

This Youtube video may help: https://youtu.be/qd5etmtyn9s It’s not specific to homeschooling businesses or Classical Conversations, but it goes over the Schedule C line-by-line in about 20 minutes.

P.S. I am no longer taxing new tax clients, so I recommend you find a local CPA to help you in preparing your tax return. To find a local CPA or accountant I recommend you try Dave Ramsey’s Endorsed Local Providers and Quickbooks Proadvisors. A lot of CPAs and accountants listed on these sites specialize in small businesses.

Carol Topp, CPA
HomeschoolCPA.com
Helping homeschool leaders

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What tax forms does a homeschool co-op teacher file?

Hi Carol.
Thank you for all the help you have already given our homeschool community!
There is a homeschool co-op that allows teachers to charge the parents $0-$45 per student.  As a teacher, how would I report any net income on my income tax return? Payments are made directly to me, the teacher.

Best regards,

Lynn (New York)

 

 

Lynn,

You report all your income and expenses on a Schedule C or the shorter form Schedule C-EZ as part of your federal form 1040.

The net amount (Income less all your business expenses) is carried onto page one of your 1040 and added to your other income  from W-2s etc.

If you made more than $400 in net income (your income less any expenses) in the year, you will also have to fill in a Schedule SE and pay Self-employment tax (it’s Social Security and Medicare taxes for self-employed people).

Hope that helps!

Carol Topp, CPA


Homeschool leaders: If you hired and paid a teacher in the past year you may need to file some paperwork with the IRS! The deadline is January 31 to give your workers a 1099-MISC or W-2.

Find out what to do in my book Paying Workers in a Homeschool Organization.

 

 


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Are violin lessons and ballet classes tax deductions?

Hi Carol, I just discovered your great website.
I pay several people for private instruction for my child: violin lessons by a private teacher, gymnastics, ballet in a nonprofit ballet school.
Can I send a 1099-MISC to any of these people or organizations?
I’d like to keep my tax liability as low as possible.
Thanks for any guidance you can provide.
Kimberly

Kimberly,

The Form 1099-MISC is to be given to a person who provide services to your trade or business. You do not give 1099-MISC to people you hire for your personal expenses (violin lessons for your children, etc).

Here’s what the IRS website says:

  • Report payments made in the course of a trade or business to a person who is not an employee or to an unincorporated business. (my emphasis added)
  • Report payments of $10 or more in gross royalties or $600 or more in rents or compensation. Report payment information to the IRS and the person or business that received the payment.

Your personal expenses (violin lessons, gymnastics, ballet) are not tax deductible expenses.

I hope that helps,

Carol Topp, CPA
HomeschoolCPA.com

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I’m a Classical Conversations Director. Do I have to file any forms with the IRS?

On April 15 last year (you know, that day the personal tax returns are due!), I received this email:

I need to be sure I don’t have any tax forms to file with IRS. This was our first year as a CC community, with only 2 tutors and 12 children.
-Name withheld to protect the guilty

 

Just as aside before I answer her question: This CC Director treated her tutors as independent contractors all year long. That may or may not have been the proper worker classification for them. She may have exerted enough control over the tutors that they should have been treated as employees, but I did not address that issue with her. At this point, what the director did in the past with regard to paying her tutors is done; it cannot be changed now. I addressed what she needs to do now to properly file her taxes.

Dear Name withheld,

As a Classical Conversations (CC) director, you are a small business owner.

You should have given your tutors a Form 1099-MISC to report the income you paid them (assuming you classified them as independent contractors). The Form 1099-MISC is to be given to each tutor by January 31 each year for the income paid in the prior year. A copy is also sent to the IRS. It sounds like you missed that deadline.

By the way, you cannot simply print the Form 1099-MISC from the IRS website. You must order forms from the IRS, purchase them at an office supply store, or use an online filing program like Yearli.com (that’s the service I’ve used to file my 1099-MISC).

You should also have reported your income and expenses from your CC business on your personal income tax return, using Form 1040 Schedule C Profit or Loss from Business.

If you had a profit of more than $400 for the year, you will also owe Self-Employment Tax. It is calculated on Form 1040 Schedule SE.

I’m afraid you are very late in filing these forms! You may owe a penalty for late filing your 1099-MISC forms. You may need to file an amended federal income tax return (Form 1040X)  if you failed to include your CC income and expenses. You may also need to amend your state income tax return.

I strongly recommend that you contact a local CPA to discuss amending your  federal and state income tax returns.

You may also need to address if independent contractor status is the proper classification for your tutors. My book Paying Workers in a Homeschool Organization can help you determine the best classification for your workers.

Carol Topp, CPA

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Compensation to homeschool board members is taxable income

BoardRoom2

This is an excerpt from my new book, Paying Workers in a Homeschool Organization-2nd edition.

Compensation to board members is taxable income

I was recently reviewing the bylaws for a homeschool organization that stated,

Members of the Board of Directors may receive reasonable compensation for their services and may be reimbursed for actual expenses incurred in the maintenance of their duties.

A homeschool organization can compensate your board for their service, but compensation to board members is taxable income. If the board member is an officer (chair, vice chair, secretary, or treasurer) they must be paid as employees. Other board members who are not officers can be paid as independent contractors and given a Form 1099-MISC.

Did you catch that? If officers are compensated, the IRS laws* say they must be paid as employees. That means creating paychecks, paying payroll taxes (Social Security and Medicare), preparing W-2s and quarterly filings with the IRS and your state, and may mean unemployment and workers compensation taxes too!

Does your homeschool group really want to deal with payroll? It can become an excessive burden on a treasurer or expensive if your organization hires a bookkeeper or payroll service. If you do choose to compensate your board members, I highly recommend using a payroll service.

*“Exempt Organizations: Compensation of Officers” https://www.irs.gov/charities-non-profits/exempt-organizations-compensation-of-officers


I spent at lot of time doing research on this book so that homeschool leaders will know if they are paying their volunteers, board members, and workers legally and correctly.

I hope the book is helpful and lets you sleep at night not worrying about an IRS audit of your worker classification.

Carol Topp, CPA

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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Can a homeschool group pay a volunteer?

womangettingpaidcrop2

This is an excerpt from my update book, Paying Workers in a Homeschool Organization

“Can we pay our homeschool co-op director? She works so hard.”

Yes, your homeschool organization can pay someone who works for the organization, but the pay must be reported to the Internal Revenue Service (IRS). The reporting responsibility will be on both the homeschool organization and the worker. Additionally, the organization will have to determine of the worker is an employee or an independent contractor. Other chapters in this book explain the required reporting and worker classification.

Instead of paying a worker, your homeschool organization can show appreciation to a volunteer in a variety of ways, but they may have tax consequences such as:

  • Reduced fees or tuition. Reduced tuition for classes or for a homeschool co-op fee is a nontaxable fringe benefit if it is insignificant (more on that in the book). If the tuition reduction is significant the value of the tuition is taxable income to the volunteer.
  • Gift cards, but they could be taxable income to the recipient if the cards are a replacement for payment for services and not a true gift.
  • Non-cash gifts such as flowers, books, a coffee mug or chocolate are excellent ways to express appreciation and are tax-free to the volunteer.

I’ll discuss each of these types of compensation (reduced fees, gift cards and non-cash gifts) to a volunteer in detail … (you’ll need to buy the book to read the details!)

Carol Topp, CPA


payingworkerscoveroutlined

Paying Workers in a Homeschool Organization-2nd edition

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

BuyPaperbackButton

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