Should my homeschool co-op be giving any tax forms to our teachers?

Form 1099-MISC for 2010 with calculator and pencil on it

Hi Carol,

I had someone ask if our homeschool co-op will send them a 1099 for payment we made to her this year.  To the best of my knowledge, we have never done this before.  Is this something we should be doing?  Is there a guideline for how and when to do this?
-Trish

If you paid an individual more than $600 for their services in a calendar year, you are supposed to give them a Form 1099-MISC and a copy goes to the IRS.

You do not have to provide 1099-MISCs to corporations or for goods you purchased or for reimbursements of expenses.You only give 1099-MISC to individuals who you paid for hired work.

It’s a good practice to collect the legal name, address and SSN from every person you pay for their services before paying them. Use IRS Form W-9.

I use a service Yearli.com to prepare the Form 1099-MISC. They charge about $5/form, mail a copy to the recipient and to the IRS. It’s very easy to use.

The 1099MISC is due to the recipient and the IRS by January 31 each year.

My new book Paying Workers in a Homeschool Organization can help  you understand all the rules and tax forms for independent contractors.

Carol Topp, CPA


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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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Can a teacher work off their tuition to a homeschool co-op?

TOSMoneyTaxesHSFamily

We have recently started an inclusive homeschool co-op. I have three of your ebooks and I’m a bit confused on a few issues.

1. Each family pays the outside teachers directly. We do a registration process, but the cash or checks go to the teacher, not the co-op. Do we mark that money “in the books” or is that outside of co-op money?

2. I am also confused with the differences between volunteer parents teaching a class for reduced fees for classes and  an Independent Contractor working off their tuition.

What am I missing?

Thank you so much for your time,
Heather

Heather,
Thank you for contacting me. To answer your questions:
1. Since the funds never come to your group, they are not recorded in your books as income to your group.

2. Volunteer vs Independent Contractor (IC). It’s a world of difference because an IC is not supposed to receive any fringe benefits such as free or reduced tuition. If you give an IC fringe benefits, then they are an employee and you need to set up payroll, pay unemployment taxes, workers comp, SS/Medicare taxes, etc…The IRS is very clear and very strict about ICs not receiving benefits.
Employees of educational institutions can receive tax-free tuition discounts. Colleges and private schools do that a lot for their employees.

On the other hand, a volunteer can receive reduced or free tuition as a nontaxable benefit if it is insubstantial. If the free tuition is substantial, then the IRS would consider this compensation and the volunteer should report it as taxable income on her tax return. Read more about insubstantial benefits to volunteers.

This explanation may help:
(this is from an article “Money, Taxes and Your Homeschool Family” in the March/April edition of The Old Schoolhouse magazine. Read the full article here: http://ow.ly/uAkhI

Teresa, a homeschool mom who teaches at a co-op where her own children take classes, was told by her co-op that they would just deduct her co-op tuition from her income as a teacher. Teresa’s co-op paid her as an independent contractor and this arrangement didn’t seem correct to her.

Fortunately, she emailed me, asking, “Can I work off my co-op fees by teaching a class?”

The answer is no, you cannot.

The homeschool co-op should pay Teresa with a paycheck. Then, as a separate transaction, Teresa should pay her fees to the co-op. It is important to separate the two transactions because of taxes. Being paid for teaching is earning taxable income. Paying tuition is a personal expense and not tax deductible. The two do not negate each other for tax purposes.

It may seem like more work for the co-op’s treasurer to pay and collect money from the same person, but the separation is important for clarity and correct reporting of taxable income to Teresa.

I hope that helps explain the difference.

My new book Paying Workers in a Homeschool Organization can help homeschool leaders understand how to properly set up compensation for volunteers and Independent Contractors.

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

Save

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Money Myths Homeschool Moms Believe. Dollars and Sense Show #13

DollarsSenseShow#13

In this episode of the Dollars and Sense Show host Carol Topp and her guest Susan Raber of AtHomeAndSchool.com discuss money myths that homeschool moms believe.

Listen to the show here

Do any of you, like me, have curriculum sitting on your shelf, that, if you are honest with yourself, you will probably never use?

I want to share some experiences I’ve learned about money and homeschooling.  I call it the Five Money Myths that Homeschool Moms Believe

Myth #1:  Just a Little More Money Will Solve All My Problems

Truth: Problem is not lack of money, but lack of contentment

Contentment Robbers: mail order catalogs, magazines, malls, etc… For homeschoolers the list is similar:

  • homeschool catalogs,
  • homeschool curriculum fairs,
  • homeschooling web sites and forums,
  • homeschooling magazines
  • and even (gasp) other homeschoolers

I personally do not look at the Sunday sale ads.  I didn’t know I needed stuff until I saw the ads!  So I stopped looking. Maybe it’s the same with you.  What are your contentment robbers?

Here’s some advice:

  1. Only look at catalogs when you have a specific need
  2. Use a shopping list at curriculum fairs. If it’s not on the list, you don’t need it.

Myth # 2:  I Need …..

Truth:  Wants are different from needs

Do you think that you just have to have a certain item (whether you need it or not) just because another homeschooler has it?

Here are some tips:

  1. Don’t buy things sight unseen
  2. Don’t buy more than one year of a new text

Myth # 3:  It was on sale; I saved a lot of money!

Truth:  Money is not saved unless there is a deposit into the bank!

As yourself: Is the sale price a good value?

My daughter was looking at an audio book catalog with deeply discounted prices.  “How can they sell these audio books so cheaply?” she asked me. “The original price was $500 and they’ll sell it for $150.” Perhaps, it never sold at $500 and it’s only worth $150. Is the $150 a good value?

Tip: If you buy something on sale, put the difference in a savings account.  Use the savings for future homeschool needs.

 

Tune in for the next Dollars and Sense show on April 10, 2014 when Carol and Susan will discuss More Money Myths that Homeschool Moms Believe.

 

Teens and taxes. Dollars and Sense Show #12

DollarsandSenseShow12

In this episode of the Dollars and Sense Show host Carol Topp discusses taxes and teenagers.

Listen to the show here

Show Notes:

 A teenager files their own tax return!  Do NOT add your child’s income to your tax return.

You can still claim your teenager as your dependent. They check a box stating they are claimed as a dependent on your tax return.

Major taxes affecting teenagers: earned income, unearned income, and self-employment tax.

 Earned Income from a job or micro business (including babysitting). Federal income tax is owed if earned income is more than $6,100 (in 2013)

 Unearned Income: interest, dividends, capital gains on taxable accounts in the student’s name. Federal income tax is owed if unearned income is more than $1,000. Between $1,00 and $2,00 unearned income is taxed at child’s tax rate. More than $2,000 unearned income is taxed at parent’s rate  on Form 8615 (“Kiddie tax”)

Self-Employment Tax

Same as Social Security and Medicare for self-employed people. 15.3% of profit over $400. Unadjusted since 1954 (adjusted would be $6,250). Schedule SE attached to Form 1040. Reported on Line 56 under Other Taxes on back of Form 1040. (the “hidden” tax)

Example: $5,000 profit earned by single teenager. Income tax $0. SE tax $706!

If you’d like to see this changed, visit MicroBusinessForTeens.com/eliminate-tax-on-teen-entrepreneurs for a position paper you can share with your congressman.

 Exception to SE tax for teenage Household Employee: Students under age 18 working in or around an individual’s home is a household employee are not subject to SE tax. Report wages on Form 1040 Line 7 with “HSH” as note. Examples: babysitting, lawn care, house cleaner

 Teenagers scammed: Treated as independent contractor instead of employee.
Signs: Paycheck with no SS/Medicare withheld. Paid in cash. 1099MISC not W-2.
Action: Complain to employer. File complaint with IRS (Form SS-8) and Form 8919 to pay half SS/Medicare.

Resources

Teens and Taxes ebook by Carol Topp, CPA available at TeensandTaxes.com
Money and Taxes in a Micro Business by Carol Topp, CPA available at MicroBusinessForTeens.com
IRS Understanding Taxes website http://apps.irs.gov/app/UnderstandingTaxes

 

Tune in for the next Dollars and Sense show on March 27, 2014 when Carol will discuss 5 Money Myths that homeschool moms believe.

 

Money, Taxes and the Homeschool Family

My latest article “Money, Taxes and the Homeschool Family” is in this month’s edition of The Old Schoolhouse magazine.

Read the entire article here

The Old Schoolhouse magazine is  completely online and FREE.

You don’t even have to give your email to read it. How coo is that?

You might want to visit page 34 too!

Carol Topp, CPA

Any tax breaks for homeschoolers? Dollars and Sense Show #11

DollarsAndSenseShow11

In this episode of the Dollars and Sense Show host Carol Topp discusses tax breaks for homeschoolers.

Listen to the show here

Show Notes:

There is no federal tax credit or deduction for homeschool expenses

Some states do allow a deduction, usually on state income tax. Proposed in Ohio: Property tax deduction for homeschool expenses

Arizona, Illinois, Indiana, Iowa, Louisiana and Minnesota and all have some sort of tax break for individuals. The credit is available to any public or private school student, so it is not unique to homeschoolers.

Links:
This website has a comparison of state programs that offer a tax credits for educational expenses or for a donation to a scholarship fund. It was last updated in September 2011. http://www.house.leg.state.mn.us/hrd/pubs/educcred.pdf

Home School Legal Defense Association has an explanation of some states’ tax breaks or credits:http://www.hslda.org/docs/nche/000010/200504150.asp

Ann Zeise of A to Z Home’s Cool has a great, detailed and lengthy post of tax write-offs for homeschoolers:
http://a2zhomeschooling.com/laws/homeschool_laws_legalities/tax_writeoff_educational_writeoffs/

 Disadvantages of tax breaks for homeschool expenses:
We have an overly complex tax system already
Fear of government regulation, proof of homeschooling, etc.

 

Remember tax deductions and credits just reduce the tax you pay.

Your state government is not putting cash in your hand to purchase books. You must do that first.

Then you pay a little bit less in tax via a tax deduction.

 

Tax breaks for parents

  • Exemptions: $3,900 per person in 2013.
  • Child tax credit. $1,000 per child. Ends when child turns 17, not 18! Law says child “was under age 17 at the end of the year.”
  • Earned Income Credit
  • Child care deduction (if working for pay)
  • Educator Expense deduction (not allowed for homeschoolers because the teacher-parent is not employed by a school for 900 hours in a school year)
    • There is a bill in the US House of Representatives to allow home school parents to take this deduction. HR 1850 sponsored by Rep Tom Cole, R-OK.

Education credits/deduction

  • American Opportunity Credit (used to be called the Hope Credit) up to $2,500 per student. Tuition, books and equipment. First 4 years of undergraduate college.
  • Lifetime Learning Credit: up to $2,000 per tax return. Tuition, books and equipment. Undergrad, graduate and courses to acquire or improve job skills.
  • Tuition/fees deduction: Up to $4,000. Cannot claim tuition deduction and AOC/Lifetime for same student in same year.
  • Student loan interest deduction. $2,500 deduction.
  • Some states allow 529 deduction (Ohio)

College savings incentive

  • 529 plans offered in many states. Known an Qualified Tuition Programs (QTP). Tax free earnings when used for tuition, books, room and board.
  • Coverdell Education Saving Account (also known as Education IRA). $2,000 contribution per beneficiary per year. Tax free earnings when used for tuition, books, room and board. Can also be used for k-12 expenses.

 

Tune in for the next Dollars and Sense show on DATE when Carol will discuss NEXT EPISODE TITLE

 

 

Do you have to file to be tax exempt every year?

TaxQuestions
Once you file a support group as a 501(c)(7) social club, does the group have to file this exempt paperwork every year?
Susan R
Susan,
An organization applies only ONCE for tax exempt status.
But, tax exempt organizations must file an annual reporting of their continued existence, Form 990/990EZ or the online 990N every year with the IRS.
It’s a little like passing your drivers license test once, but you must renew your license every couple of years.
Most homeschool organizations file the online 990N and not the longer 990/990EZ because their annual gross income is under $50,000.
If you fail to file the 990/990EZ/990N for three consecutive years, your group’s tax exempt status is automatically revoked! Then you may end up owing taxes. 🙁
Additionally, some states require annual filings as well. Visit Hurwit and Associates to see what your annual filing requirements in your state might be. Pick your state in the drop down menu on the right sidebar.
I hope that helps!
Carol Topp, CPA

How to report income earned from teaching at a homeschool co-op

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

Best regards, Lynn (New York)

Lynn,

You report all your income and all your expenses from teaching at a homeschool co-op on a Schedule C or the shorter form Schedule C-EZ as part of your federal Form 1040.
The net amount is carried onto page one of your 1040 (line 12 Business income) and added to other income from W-2s etc.

If you made more than $400 in net income (profit) you will also have to fill in a Schedule SE and pay Self-employment tax (it’s the same as Social Security and Medicare taxes) on Line 56.

Hope that helps!

Carol Topp, CPA

Any tax breaks for homeschooling in 2013?

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Tax season hasn’t even started, but my website stats tell me that homeschooling parents are already wondering if there are any tax breaks for homeschooling, based on my previous blog post, Any Tax Breaks for Homeschoolers?

 

There are no tax credits for homeschool expenses from the federal government, but there may be tax deductions on your state income tax depending on what state you live in.

Several states have an educational tax credit.

Arizona, Illinois, Iowa, Louisiana and Minnesota and all have some sort of tax break for individuals. The credit is available to any public or private school student, so it is not unique to homeschoolers.

Florida, Indiana, New Hampshire and Pennsylvania offer businesses a tax credit if they sponsor a scholarship.

This website has a comparison of state programs that offer a tax credits for educational expenses or for a donation to a scholarship fund. It was last updated in September 2011. http://www.house.leg.state.mn.us/hrd/pubs/educcred.pdf

 

Home School Legal Defense Association has an explanation of some states’ tax breaks or credits:http://www.hslda.org/docs/nche/000010/200504150.asp

Ann Zeise of A to Z Home’s Cool has a great, detailed and lengthy post of tax write-offs for homeschoolers:

http://a2zhomeschooling.com/laws/homeschool_laws_legalities/tax_writeoff_educational_writeoffs/

Sorry I don’t have happier news, but many homeschoolers fear that a tax credit might come with strings attached such as reporting private information and record keeping that they would not care for. They prefer to homeschool in freedom and pay their own way in full.

What do you think?

Carol Topp, CPA

 

What I learned from the IRS that can help homeschool support groups

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I attended a phone forum on 501(c)(7) tax exempt social clubs put on by the IRS recently.

The IRS didn’t address homeschool support groups specifically, but many homeschool support groups fit the definition of a social club because they are organized as a group of people with a common interest who gather face-to-face for pleasure, social or recreational purposes.

 

Here are some things I learned. The italics are from the IRS slides. The translation is my application to homeschool support groups:

Social clubs are tax exempt because “Members who pool their funds for recreational and social purposes should not be worse off than those who obtain recreational and social benefits on an individual basis.”

Translation: If homeschool support group members pool their money for a field trip, the support group does not pay tax on this pooled money.

 

Social Clubs should not have  written policy which discriminates against individuals seeking membership on the basis of race, color, or religion.

Exception: A social club can limit its membership to a particular religion if the limitation is a good faith attempt to further the teachings or principles of that religion and isn’t intended to exclude individuals of a particular race or color.

Translation: A homeschool support group may have a statement of faith for its members, but it must be because they wish to advance their religious views. The group cannot exclude people because of their race or color.

 

Substantially all of income must be from members for traditional recreational/social services or facilities.

Translation: At most 35% of your  support group’s income can come from sources like fundraisers; most of your money needs to come from membership dues.

 

A club that meets the requirements of exempt status can operate without recognition of its exempt status, but has no assurance the IRS agrees that the club is exempt.

Translation: A social club doesn’t have to file the IRS paperwork or pay their fees! They can “self declare” tax exempt status!

 

A social club files the appropriate Form 990 series return (990, 990EZ, 990N) each year.

Translation: A homeschool support group should be filing the online 990N (it’s only 8 simple questions) if their annual income is less than $50,000. If annual income is more than $50,000 they must file the longer Form 990EZ or 990.

 

A social club’s exemption will be automatically revoked if it fails to file its required Form 990 for three consecutive years.

Translation: Three strikes and you’re out! So file those 990Ns!

 

A social club must file Form 990T (including Schedule G for investment income) for years in which it has $1,000 or more in gross unrelated taxable income

Translation: If you have more than $1,000 of your income from fundraisers or interest on  a savings account, you have to file a tax form 990T and may owe tax on the fundraising profits. So keep those fundraisers to a minimum; most of your income should some from members’ dues.

 

If you’d like to see the slides from the phone forum they are available here: http://www.irs.gov/pub/irs-tege/c7%20phone%20forum%20slides_Aug%202013-_finalv2.pdf

If you have any questions on whether your homeschool group fits the definition of a 501(c)(7) Social Club, read this article. Homeschool Groups As Social Clubs

Still unsure or have more questions? Consider a phone consultation with me.

Carol Topp, CPA