Search Results for: 529

My homeschool is a private school. Can I use 529 funds?

05/15/2018 by Carol Topp Leave a Comment

I explained in “Can homeschoolers use 529 plans? Maybe!” that you can use 529 savings account funds for tuition paid to a public, private, or religious school.

Some homeschool students take classes from private schools (locally or online). The tuition payments to these schools can use 529 funds without penalty or taxes.

So that begs the question,

“In my state, my homeschool is considered a private school. So can I use 529 funds for my private school/homeschool expenses?”

No. Sorry!

Here’s why:

The expenses must be to pay tuition. You don’t pay yourself tuition! That would be silly and not tax-smart.

Your other homeschool expenses such as books, curriculum, school supplies, field trips and are not paymnets for tuition and so you cannot use 529 funds without paying a hefty penalty!

Tuition payments to organizations that are not schools like your local co-op, Classical Conversations, etc. cannot use 529 funds either (without incurring taxes and a 10% penalty!)

Carol Topp, CPA

Filed Under: Homeschooling Helps, IRS Issues, Money & Budgets Tagged With: 529, homeschool, IRS, tax deductions, taxes

Does using a distance learning program mean I can use 529 funds?

04/24/2018 by Carol Topp Leave a Comment

If you are homeschooling using an accredited, distance learning program like Mother of Divine Grace where you pay tuition, can you then use your 529 plan money?

Katie in Indiana

Katie,

529 plans have been a popular way to save for college expenses and have the gains be tax-free when used for qualified educational expenses. The Tax Cut and Jobs Act or 2017 expanded the use of 529 plans to include K-12 expenses. The laws says this about using 529 plans for K-12 expenses:

the term ‘qualified higher education expense’ shall include a reference to expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.” (emphasis added)

There are 2 conditions for you to use 529 funds for K-12 expenses:

1) the costs must be for tuition and

2) the institution you pay must be “a public, private, or religious school”

Mother of Divine Grace (MODG) is a California for profit corporation that describes itself as a private school and a private distance school in their California filings.

So if your children are enrolled at MODG (or similar private schools offering distance learning), you paid MODG tuition, and MODG is a school, then you can use your 529 plan to pay for tuition.

Homeschool parents should check with the program to whom they are paying tuition to determine if it is a school according to their state’s definition. If you have any concern about their status as a school, then do not use 529 funds to pay for the tuition. Withdrawals from a 529 fund that are not “qualified” (i.e. tuition paid to a public, private, or religious school) then you must pay income tax and a penalty of 10%. Ouch!

Your other homeschool-related expenses such as books, supplies, equipment, and payments to organizations that are not schools (like a homeschool co-op) cannot use 529 funds.

Carol Topp, CPA

Filed Under: Homeschooling Helps Tagged With: 529, homeschool, taxes

Can homeschoolers use 529 plans? Maybe!

03/20/2018 by Carol Topp 2 Comments

Congress decided to expand 529 savings plans to be used for K-12 expenses in the Tax Cut and Jobs Act or 2017. 529 plans were originally set up to save for college. The earnings on the savings is tax free. But they specifically excluded homeschool expenses from using 529 funds.

That seemed unfair to a lot of homeschoolers.

But there may be a way for homeschoolers to use their 529 savings accounts for some K-12 expenses.

The Tax Cut and Jobs Act or 2017 says this:

the term ‘qualified higher education expense’ shall include a reference to expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.”. (emphasis added)

There are 2 conditions for you to use 529 funds for K-12 expenses:

1) the costs must be for tuition and

2) the institution the family pays must be “a public, private, or religious school”

Some homeschool students take classes from private schools (locally or online). The tuition payments to these schools can use 529 funds.

But the cost of books, supplies, equipment, and payments to organizations that are not schools cannot use 529 funds.

Be careful that the tuition payments are going to a public, private, or religious school. In my experience most homeschool programs (co-ops, tutorials, etc) are NOT schools.

Homeschool parents should check with the program that they are paying tuition to to determine if it is a school according to their state’s definition.

If you have any concern about their status as a school, then do not use 529 funds to pay for the tuition. Withdrawals from a 529 fund that are not “qualified” (i.e. tuition paid to a public, private, or religious school) then you pay income tax and a penalty of 10% on the withdrawn earnings. Ouch!

Carol Topp, CPA

Filed Under: IRS Issues, Money & Budgets Tagged With: 529, homeschool, money, tax deductions, taxes

DIY 1023 Resources

DIY Tax Exempt Application: Resources to help you apply for 501c3 Tax Exempt Status

I no longer prepare the IRS Form 1023 Application for 501c3 Tax Exempt status for clients, but I have bundled several resources to help homeschool organizations apply for tax exempt status themselves using the longer Form 1023. This will save the homeschool group thousands of dollars yet give you assurance that your will be successful is getting 501c3 status.

Is my organization eligible to file the shorter Form 1023-EZ?

Three Webinar Set and ebook
These three webinars will explain how to start a nonprofit, apply for 501c3 status and what to do after you are a 501c3 tax exempt organization.

A bonus: Carol Topp’s ebook The IRS and Your Homeschool Organization.

The 3-webinar set (plus extras) sells for $50.

Form 1023 Template
This template of the IRS Form 1023 is 80% complete. You simply edict it with the specific information for your organization. Then print it and send it to the IRS.

The template is an interactive pdf file partially filled out.

Value: $100

Review your self-prepared Form 1023
Carol Topp, CPA will review your self-prepared Form 1023 and offer comments and tips for speedy approval by the IRS.

Value: $100-$300

Cost

The cost of the total DIY 1023 bundle is $250.

Email Carol Topp, CPA if you are interested in this bundle. She will invoice you and email the resources to you directly.

Optional Add ons

IRS and State Filings. What to do after you receive 501c3 status.
A customized report of what your organization needs to file annually with the IRS and your state to maintain your 501c3 tax exempt status.

Includes forms for you to complete and due dates.

Cost $100

Phone consultation with Carol Topp, CPA
Have questions about applying to tax exempt status? Arrange a Phone Consultation
$85/hour

What homeschool expenses can I deduct on my taxes?

03/13/2018 by Carol Topp Leave a Comment

Here’s a list of homeschool expenses you can deduct on your federal income tax return (Form 1040):

Yes, that’s the list! It’s empty. There are NO homeschool expenses that you can deduct on your individual federal income tax return.

(Sorry for the click bait in the title!)

Homeschooling expenses are personal expenses, like groceries or clothes, and are not tax deductible on the US federal income tax return.

You cannot deduct your groceries or your clothes on your tax return and you cannot deduct your homeschooling expenses on your federal income tax return, either.

A few states may allow a tax deduction, a tax credit, or an educational saving account. But not your Uncle Sam (the US federal government).

Clever ideas to dodge taxes (that won’t work)

Sometimes homeschool families try to get clever and think that they will form a homeschool business and deduct the expenses. The idea is for the dad to hire his wife to teach their children. Then they can deduct school supplies, the mom’s wages as a homeschool teacher, etc.

Sounds pretty clever, huh? Except it doesn’t work anymore than paying mom to cook and feed the family by running an “in-house restaurant” won’t work. That’s because in both these plans (homeschooling as a business and in-house restaurant) there are no customers that are paying for the mom’s services.

Also, the mom has to declare her income to the IRS and she will have to pay taxes on it! That’s why families don’t hire mom to run an in-house restaurant and they shouldn’t hire mom to homeschool the kids either.

So forget the idea of forming your family homeschool as a business.

Homeschools as private school. Any tax breaks?

Some states treat homeschools as private schools, so some families think they can avoid taxes by declaring their private homeschool as a nonprofit organizations and get tax exempt status as a private school. That’s pretty clever too, huh? Only it won’t work.

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 directly and personally benefit from the organization. 501(c)(3) organizations can lose their tax exempt status for practicing inurement.

So forget the idea of your family homeschool becoming a nonprofit organization.

In the end, do what the rest of use do, pay your taxes.

Don’t look to Uncle Sam to give you a tax break because you choose to educate your children at home. Instead appreciate the freedom we have an Americans to homeschool.

Carol Topp, CPA

Filed Under: IRS Issues, Nonprofit status Tagged With: homeschool, IRS, tax deductions, taxes

Can our homeschool group get sued if we’re not a recognized nonprofit?

08/29/2017 by Carol Topp Leave a Comment

Carol,
We are a Christian homeschool group and co-op. The church that hosts our co-op classes is concerned with the possibility of us getting sued if we are not a recognized non-profit. We are comprised of like-minded believers for a specific cause. Can you comment on this?

TW

TW,

I usually recommend nonprofit incorporation to protect the leaders and members of a homeschool organization.

Nothing can stop a lawsuit, but forming as a corporation means the liability is limited to the corporation’s assets and it protects the personal assets of the leaders and members from the lawsuit damages.

Unfortunately, being like-minded does not mean you’re immune from lawsuits. One group told me that a co-op member’s health insurance sued the homeschool group for medical bills when a child was injured while at co-op. The co-op member did not bring the lawsuit, her health insurance company did.

If you need more information on the benefits of nonprofit incorporation for your homeschool group, read The IRS and Your Homeschool Organization. It includes a chapter on nonprofit incorporation.

I hope that helps,

Carol Topp, CPA

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Filed Under: Nonprofit status Tagged With: corporation, homeschool, lawsuit, leaders, liability, non profit

Recording of Business Failure in the Homeschool Marketplace webinar

01/15/2017 by Carol Topp Leave a Comment

Yesterday I presented a webinar “Business Failure in the Homeschool Market“ that many of you (about 90!) attended.

Here’s the link to download the recording of the webinar.

The webinar lasted 2 hours because of all the questions asked, so it may take a few minutes to download.

Here’s a handout of the information I discussed.

We talked about

What triggers an IRS audit into worker classification
Factors to determine independent contractors or employee status
Consequences of misclassification and IRS programs to avoid penalties
What options are there for a homeschool co-op or academy
Are homeschool tutors or teachers at risk

I referenced my book Paying Workers in a Homeschool Organization which may be helpful to many of you.

I also mentioned that I offer a Worker Classification determination service if you need help determining if your workers are independent contractors or employees.

I’m happy to help and relieve any anxiety you have about this confusing topic.

Carol Topp, CPA

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Filed Under: Paying workers Tagged With: Hiring workers, independent contractor, paying teacher, Paying workers

Checklist for homeschool co-op

07/12/2016 by Carol Topp Leave a Comment

We are going through the process to create a non profit homeschool co-op and were wondering how much it would cost for you to review our paper work or how much it would cost for you to do and submit our paperwork.

Candace

Candace,

I have a listing of my fees here: https://homeschoolcpa.com/services/

My services vary depending on what you mean by “filing your paperwork.” There’s paperwork with your state and paperwork with the IRS. I can help with both types of filings.

Here’s a helpful checklist to keep it all straight!

Carol Topp, CPA

Candace’s question prompted me to update my Checklist for Homeschool Organizations Applying for Tax Exempt Status.

I know that forming a nonprofit organization and applying for tax exempt status can be confusing. There are just too many unfamiliar terms, IRS thresholds, steps to take and numbers!

This checklist will help you know the steps to take and the correct order.

If you need help at any step or want a personal consultation to discuss your unique situation, please contact me.

I am available to assist your homeschool organization every step of the way. Through my blog posts, books, podcast, and consultations, I try to make confusing IRS rules easy to understand. I have assisted over 80 organizations receive 501c tax exempt status.

Carol Topp, CPA

HomeschoolCPA.com

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Filed Under: 501(c)(3) status Tagged With: 501c3, co-op, homeschool, IRS

Checklist for nonprofit tax exempt status

Research

The process to form a nonprofit homeschool organization and apply for tax exempt status can seem daunting.

This checklist will help you know the steps to take and the correct order.

If you need help at any step or want a personal consultation to discuss your unique situation, please contact Carol Topp, CPA.

Checklist for Homeschool Organizations Applying for 501c3 Tax Exempt Status

Phase I: Setting Up Your Organization

Choose a name for your nonprofit. Research the IRS Charities web site, the internet, and your state’s Secretary of State’s Office to be sure it is not already taken.
Choose a board of directors (often only three people are needed, a president/chair, a treasurer, and secretary). Board members should be unrelated to each other. More is usually better, including a vice-president/chair.
Develop organizational by laws—the rules by which you will operate. Sample bylaws.
Create a budget and list sources of income and expenses.

Phase II: Forming a Nonprofit Organization

Hold your first board meeting. Get approval of the by laws and approval to form a nonprofit corporation.
Draft an organizing document (Articles of Incorporation or Articles of Association) including a statement of your purpose. Specific language required by the IRS needs to be included in your Articles to be granted 501c3 status by the IRS. Read Sample Articles and the IRS-required language.
- Carol Topp, CPA can review your Articles for compliance with the IRS requirements. Contact Carol.
Read about Nonprofit Incorporation and it benefits. Have the board vote to form a nonprofit corporation or stay as an unincorporated association.
Incorporate as a nonprofit organization in your state. Submit Articles of Incorporation to the appropriate office in your state government with the required fee. This is usually the Secretary of State’s Office.
Obtain a Federal Employer Identification Number (EIN) using the name of the corporation, submitting IRS Form SS-4 either on-line. Go to IRS.gov and type EIN in the search box.
- Carol’s book Money Management in a Homeschool Organization has details on how to apply for an EIN.

Phase I and II are explained in my webinar Create a Nonprofit for Your Homeschool Community. Details.

Phase III: Apply for 501c Tax Exempt Status

Read all you can on filing for tax exempt status. Carol Topp’s book, The IRS and Your Homeschool Organization will be very helpful.
Consider a phone consultation with Carol Topp, CPA to discuss the details of your particular organization.
Have the board vote their approval for filing 501(c)(3) tax exempt status.
File IRS Form 1023 or Form 1023-EZ to become a 501(c)(3) tax exempt organization, preferably within 27 months of the date of incorporation. Carol Topp, CPA can help with this rather daunting task. Her specialty is homeschool organizations and she has helped over 100 nonprofits receive tax exempt status from the IRS. Contact her.
Pay filing fees to the IRS of $600 if you anticipate having revenue of over $50,000 per year, or $275 if you anticipate having revenue of less than $50,000 per year. Carol’s fees are in addition to the IRS fees.

Phase III is explained in my webinar 501c3 Application for Homeschool Nonprofits. Details.

Phase IV: IRS and State Fillings

Register as a charity within your state. Research what your state requires from nonprofit organizations. Carol Topp, CPA can also help you determine what your state filing requirements will be for your organization. Contact Carol.
Maintain 501c3 tax exempt status with the IRS by filing the annual 990/990-EZ or 990-N Information Returns.

Phase IV is explained in my webinar IRS and State Filings for Homeschool Nonprofits. Details.

Carol Topp, CPA, the HomeschoolCPA, is available to assist your homeschool organization every step of the way. Through her website HomeschoolCPA.com, books, podcast, and consultations, she makes confusing IRS rules easy to understand. Carol has assisted over 100 organizations receive 501c tax exempt status.