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?

cutting_taxes_green8732

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

phone_white

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

Better for a homeschool group to file for 501c3 or pay taxes?

TaxAdviceLetters

I read your book The IRS And Your Homeschool Organization. What a Godsend! I am the director of a small homeschool academy in Missouri. We are in the process of deciding whether to do a 501(c)(3) or not. My board has two questions.

1. You state the IRS filing fee is $850. That may be a struggle for us. Would there be a cost savings to just file income taxes? You mentioned a 15% corporate tax. We have been a non-profit corporation since 11/04/11.

2. Would taxes have to be paid on years prior to 2011….whether we file or not? We have had a gross income over $5,000.

Diann

 

Dear Diann,

Thank you for contacting me and your kind words!

1. Some nonprofits find it cheaper to pay taxes at 15% of their profit than the IRS filing fee. That’s a shame! Of course the $850 IRS filing fee is one time only, taxes go on forever. 🙁

The corporate income tax form is Form 1120. The corporate income tax rate is 15% of your profit.

Additionally, you will not receive other tax exempt benefits such as sales tax exemption, ability to accept tax deductible donations, and participation in fund raisers like Box Tops for Education without 501(c)(3) status.

2. Taxes will have to be paid from your date of incorporation, which in your case was November 4, 2011. You’re already late in filing a corporate income tax return, Form 1120, for 2011 (or whatever you fiscal year is). You’re probably be late for 2012 too! Since you never applied to be tax exempt, your organization could owe back taxes.

The IRS allows 27 months after date of formation (incorporation) to apply for tax exempt status and be back-dated to your date of formation. So if you apply for tax exempt status before February 4, 2014, you will be tax exempt and not owe any income tax. Better hurry!

IRS and Your Homeschool Org cover

 

Diann found my book The IRS And Your Homeschool Organization helpful. You might too!

 

Carol Topp, CPA

 

“Incorporate yourself and write off homeschool expenses.” Really?

TaxAdviceLetters

 

Hello. I’ve been doing some research lately on how best to write of homeschool expenses in the state of Florida and came across your website. I’m hoping that you can assist me.

I’ve contacted my accountant who was able to confirm that the only way to write off homeschool expenses in Florida is to incorporate yourself.

If I go through that process, is there a site or a list of what I will be able to write off? Is it 100% of costs like curriculum and field trips? I’ve also heard that I can write off mileage related to homeschool events and even a portion of my mortgage.

I haven’t been able to find a good list anywhere that will tell me what steps I need to take and what advantages I will have once I take those steps.

Can you help or direct me to a good site that can help me?

Thank you so much for your time.

Becky C in FL

Becky,

To “incorporate yourself” you need a legitimate trade or business with a source of revenue (i.e. sales of a product or service). Paying yourself for homeschooling your own children does not count as a trade or business or revenue, so you cannot legally form a corporation.

Even if you do somehow form a corporation without revenue, your homeschool expenses are personal expenses and cannot be deducted on your corporate income tax return.

The advice you received from the accountant you found was incorrect.

Carol Topp, CPA

 

Will being an Amazon affiliate cause tax problems for a homeschool group?

money_through_laptop_pc_400_clr_2978

 

I have a question about affiliate relationships with companies like Amazon. We want to receive the benefits offered by Amazon (and others) by placing a link on our website for members and non members to use when ordering products.

I read through one article on your blog regarding Unrelated Business Income Tax (UBIT). One point in your article refers to exemptions for the tax and I believe we will qualify for at least two:

  • A $1,000 threshold allows that the first $1,000 in profit 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.

Do you have anything to add to that article or any others I haven’t seen?  Specifically, should we avoid these types of programs?

I appreciate your insight as well as your being a resource to the homeschool community.

Sincerely,

Jeanne R

 

Jeanne,

Thank you for contacting me and your kind words.

I think you understand Unrelated Business Income Tax (UBIT) and the exemptions quite well.

UBIT is a tax that tax exempt organizations must pay when they earn a profit on activities that are unrelated to their tax exempt purpose. The classic example is that a nonprofit hospital must pay the IRS taxes on profit from their gift store, because running a gift store is not related to the hospitals tax exempt purpose (treating illness).

Most charities qualify for exemption from UBIT and you found two common exemptions.

I think the affiliate program with Amazon is a fine idea.

Have it run by volunteers and you’ll avoid any UBIT.

Carol Topp, CPA

New homeschool group wants to avoid paying taxes

stickman_question_mark_Green

I’m heading up a small group of about 20 homeschooling families. We may grow a bit, but we are in a small town, so I can’t imagine we’d ever be over 40 families big.

I’ve also set up a website and Google group. This is just information and communication for any area homeschooler, not a co-op of families who attend anything. It has about 50 families and growing.

What do I need to be aware of to be sure that we don’t become the kind of organizations (either of these groups) that have to file or pay taxes. We do not collect dues. If there is a field trip with a fee, each family just pays it at that time.

Thank you!
Kaysha

 

Kayla,

It sounds as if both groups are a small gathering of like-minded people. You said you don’t even collect dues! Amazing!

If you ever do collect dues, then open a checking account in the group’s name, so the money doesn’t look like your own personal money. This might involve getting an Employer Identification Number (EIN) from the IRS to open a checking account.

So long as you organize and operate like a nonprofit (no profit motive and decisions made by a group of leaders not one person) and stay under $5,000 gross income per year, you will be tax exempt in the eyes of the IRS. The  IRS does request that all nonprofits , even very small ones, file an annual Form 990N. It’s only 8 questions.

This checklist will keep you on track:  A checklist for new homeschool organizations

Then read the following articles in order:

  1. What’s in a name?
  2. Choosing a leadership team
  3. Writing your mission statement
  4. Getting an EIN from the IRS
  5. Identifying who you are by writing bylaws
  6. Sample bylaws
  7. Budgeting basics

I hope that helps!
Carol Topp, CPA