I haven’t found anything that exactly explains what I’m allowed to do. I have a small Homeschool group. I set up everything so parents chip in money to pay for supplies. I also pay for all of the field trips and they pay me back. I soon will be fronting the entire cost of the yearly insurance and ask for a yearly membership fee to cover it.
Do I have to be a business to handle this kind of money? It is only me and I do not want to be forced to leave the board after 5 years. I would prefer no business or a for profit business. Can you advise me to what is best?
I do not pay myself anything, I only collect money to reimburse myself. Is all of this really necessary? Oh and if I hold a tag sale or bake sale to help pay the insurance cost, will that be taxable by me?
Thank you, D.
You probably cannot find any information regarding your situation because right now you are a mix of a business and a nonprofit. You took money and delivered a service. That’s makes you a business by default in the eyes of the IRS and your state. The only way to not be a business is to not take money! That’s obviously not possible for the activities and programs you conduct. But you also don’t have a strong profit motive, and I assume the parents volunteer to help out, so you operate much like a nonprofit organization.
So you need to decide which option your group wants to be: for profit business or nonprofit organization. You cannot (legally or wisely) be a mix of the two. Well…you can be a low profit business, but then you cannot use volunteers. Bummer.
Decide nonprofit or business
The main differences between a for-profit business and a nonprofit organizations are:
1. Profit motive. Nonprofits have a purpose other than making a profit; in this case it would be to educate children, which the IRS says can be a purpose to be granted 501(c)(3) organization.tax exempt status.
2. Ownership and control. A nonprofit is not owned by anyone; the board runs the organization. That can be a huge advantage since you have a team to help you! Everything (including all the liability) is not all on your shoulders. When you run a business all the work and all the liability is on you alone.
You are worried about being forced to leave the board after 5 years. Well, my advice to you is that after a few years, you may want and need a break in leadership to avoid burning out! IOW, you don’t know what the future holds; don’t get too far ahead of yourself! LOL! If you build a team of great, helpful people it will be a relief to you and ease the burden. I encourage you to see the leadership team/board as a benefit, not a burden. Additionally, your board can create bylaws that have no term limits. While I don’t recommend that, it can be done.
Read more here: Should a homeschool group have term limits?
3. Tax exemption and tax deductible donations. Nonprofits who apply for 501(c)(3) status with the IRS will be tax free on their surplus and can receive tax-deductible donations.
4. Volunteers. A for-profit business cannot use volunteers; you must pay anyone who works in the business. A nonprofit organization can have volunteers.
So you ARE running a business (at least you did last year). And yes, if you have a tag sale, it is taxable income to you (your business). You may want to read my ebook on Taxes for Homeschool Business Owners.
This year, you may want to operate as a nonprofit. Most homeschool group do organize (a board and bylaws) and operate as nonprofits for the reasons I list above (volunteers, a board /team to help, etc.)
I recommend you read the Articles and Checklist on my website. Then gather a few (at least two) people to help you run this group. My website has books, podcasts, blog posts and webinars to help get you started.
I hope that helps and gives you something to think about!