I recently just purchased business contents insurance for my nonprofit homeschool organization and the agent asked if we have a license to do business in Pennsylvania? This isn’t something that I had come across in research I wasn’t sure if we were required to obtain a business license. I know it wasn’t on the PA requirements you had sent us.

Thanks

CS in PA

Dear CS,

You asked if your homeschool group needs a business license in PA. Your insurance agent asked if it has a “license to do business in PA.”

1. Let me start with the idea of your group’s right to do business in PA or what is usually called “registering” a business in PA. Most states want businesses to register so that the state can collect taxes from the business.

For example, businesses  in PA (but remember that nonprofits are not businesses) must file a 14 page PA Form PA-100 to be assigned various tax accounts in PA. This link explains that PA-100 is used to get a sales tax ID number, pay employer taxes, get a Resellers permit,  pay Use tax, and for businesses selling certain products that PA taxes like cigarettes, alcohol, fuel, hotels, etc.

In your case only two of the taxes apply: sales tax exemption and employer taxes. HomeschoolCPA provided the information on sales tax exemption in a letter to you explaining PA required filings (I provide this service for homeschool organizations. Details HERE) . I did not supply information about employer taxes, because I assumed that your payroll service will help you get an PA employer tax ID when they set up your payroll.

So your homeschool group is registered in PA as a nonprofit corporation. That’s your right to do business in PA. That happened when you filed the Articles of Incorporation.

2. Now as for your homeschool group needing a business license: Most nonprofits don’t need a business license. They are not business. They may need to register their existence and right to do business, but your organization did that when it incorporated in PA, as mentioned above. And only some businesses need a license to operate. Lawyers, accountants, nurses, barbers, real estate agents, are examples of occupations (and businesses) that need to be licensed. None of these occupations or businesses apply to your organization. IOW, your homeschool nonprofit doesn’t need a business license to operate.

So the way to answer your insurance agent’s question is: “Our homeschool organization is registered as a nonprofit corporation in PA and we do not meet the requirements to need a business license in PA because it is not a business and does not involve any of the occupations that require licensing in PA.”

To be honest, your insurance agent probably works with small businesses so much that he/she may have forgotten that your group is a nonprofit. And (s)he’s probably not very familiar with the registration (and licensing) requirements for nonprofits in PA.

P.S. I checked several reputable sources for checklists of forms that nonprofits need to file in PA including Nolo.com, Northwest Registered Agent. They did not mention registering as a business (Form PA-100) nor did they mention licensing in PA for nonprofits. That was as I expected.

I hope that helps!

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If you have questions about starting or running your homeschool organization, contact HomeschoolCPA. We can arrange a phone or video (Zoom) consultation or reply to emails for a reduced fee.

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Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Lots of homeschool groups use Paypal, Venmo, Stripe, Square, etc. and other third party payment processors to collect dues and fees. That’s a great way for your group’s families to pay the organization easily.

For 2022, these third party payment apps will start sending everyone who receives more than $600 though their service a tax form called a 1099-K and a copy goes to the IRS. This means that your homeschool group will receive a 1099-K in early 2023 showing all the funds (if greater than $600 in the previous calendar year) that flowed through Paypal, Venmo, etc. and a copy goes to the IRS!

Here’s the law itself (scroll to page 94 of the 114 page pdf). It is part of the American Rescue Plan Act of 2021. The new rule is effective beginning on January 1, 2022. President Biden signed the law with the threshold amendment in March 2021.

What to do with a 1099-K when it comes in early 2023?

If your organization is a tax exempt, nonprofit AND your payment account is set up under the organization’s name AND uses the organization’s EIN (Employer Identification Number) as their tax ID, you have nothing to worry about!

You should simply give the 1099-K to the treasurer or your bookkeeper and she should check the amount for accuracy. Then file it away. Your tax exempt organization should be filing an annual IRS Form 990/990-EZ/990-N with the IRS every year. The amounts on the 1099-K will be included in the total revenues on this 990 Information return. But you will not owe additional tax on this money, because your organization has tax exempt status. 🙂 The IRS Form 990/990-EZ/990-N are information returns for tax exempt organizations, not tax returns.

How do I know if my Paypal, Venmo is in the organization’s name?

Log onto your third party payment processor. Go to Settings>Account Information and click around until you find a Tax ID section or Identity Verification (on Venmo). Also look for Account Type. In PayPal and Venmo you should have a Business Account, not personal account for your homeschool group.

How do I know if my group is a tax exempt nonprofit?

Look up your organizations name in the IRS Exempt Organization database. https://apps.irs.gov/app/eos/

Here’s an example from a charity I serve as treasurer:

When I click on the hotlink of the organization’s name I learned a few more details and see that this organization is update date with filing annual IRS reports.

If your organization is not listed or it says Revoked with a date, your homeschool group is not tax exempt and must correct that immediately. Start by reading the blog posts and contact HomeschoolCPA to apply for tax exempt status or get tax exempt status reinstated if it expired.

Lost your tax exempt status?

How do I know if my organization has lost its tax exempt status?

How do I know if we are using the organization’s EIN as our tax ID?

Log onto your third party payment processor. Go to Settings>Account Information and click around until you find a Tax ID section or Identity Verification (on Venmo). In PayPal and Venmo you should have a Business Account, not a personal account for your homeschool group.

What if our Paypal account is a person’s name?

Well, now you have a problem! Paypal (I’m using Paypal generically to mean any payment processor) thinks this account belongs to an individual and he or she will get the 1099-K. A copy goes to the IRS and the IRS will expect to see this money reported on that person’s individual tax return! Expect to get a panicked call from this individual! She will probably have to hire a professional tax preparer to help her report this money (which is not really hers) and deduct any expenses, so she avoids a large tax bill. She will be very unhappy with your organization!

How to check your Paypal account: In Paypal go to Account Settings>Business Profile> Account Owner Information. Look under the Tax ID. There should be a number for the EIN, but NOT for SSN. That’s how it should be!

If your Paypal account is in someone’s SSN, change that immediately. You may need to contact Customer Service. They will want verification of your EIN (the IRS letter you received when you applied for your EIN) and perhaps other documents such as proof you are a nonporift and tax exempt with the IRS. If you do not have these documents, Paypal will likely close your account. So empty the cash first and create a new Paypal account under the name and EIN of your organization.

Here’s what to do NOW in the last weeks of 2021:

1. Log onto all your third party payment processors (Paypal, Venmo, Zelle, etc). Verify that all the accounts are in the name and EIN of your organization. Verify that the address is up to date too. Take screen shots and save them permanently.
2. Fix any incorrect information on the third party processor accounts. Take screen shots and save them permanently..
3. Call the third party processor customer service if you have any problems updating your information online.
4. Don’t have tax exempt status? Contact HomeschoolCPA to apply for tax exempt status. Start by reading these blog posts:

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Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

I’ve attended lots of training by the IRS for nonprofit and tax exempt organizations. They are usually informative, but a little dull. The IRS training modules (videos, virtual workshops, live and virtual conferences, and lots of documents) apply to all sorts of nonprofit organizations, large and small. That’s why I created books, podcasts and webinars specifically for homeschool nonprofits.

But I recently found a few IRS training videos that were pretty good! One in particular on maintaining your tax exempt status was informative, interactive and easy to follow. This virtual workshop runs for 30 minutes and covers:

• The IRS Form 990 annual exempt organization returns
• Record keeping needed to prepare the Form 990
• Unrelated business income tax filings
• Public disclosure requirements
• Prohibited political activities
• Private benefit and inurement

I am asked about these topics all the time, so now you can get the information from the source: the IRS!

Maintaining Your Tax Exempt Status (IRS virtual workshop)

(if you’d rather read this information, a transcript is provided as well)

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The IRS website called Stay Exempt has lots of other virtual workshops for small and medium-sized organizations. Click on any topic on the top menu that fits your circumstances such as Starting Out or Existing Organizations.

I think you will find them helpful and worth your time.

If you find any of the IRS information confusing and wonder if it applies to your homeschool group, please contact HomeschoolCPA. We can arrange a phone consultation or Zoom meeting to discuss your particular situation.

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Colleen Eubanks shares a video review of Classical Conversations. She was a tutor and Classical Conversations Licensed Director for two years.

About the 13:30 mark (roughly half way), she clearly explains some of the liability that she carried as a Licensed CC Director. Her concerns include:

• Paying tutors as employees or Independent Contractor
• Not being hired as an employee when a Director
• Securing a facility to meet and being responsible to the building
• Potentially jeopardizing the church’s property tax exemption by operating her for-profit business in a church

Since Collen owned another business in addition to directing a CC Community, she knew about employees and Independent Contractors. She also consulted her CPA in running her CC Community business. Smart woman!

She explains her concerns clearly and factually. All CC Directors should be aware of the liability they carry so they enter into a licensing agreement fully aware of these issues.

I hate to hear stories of CC Directors not being aware of the fact they are running a business! And it’s very unfortunate when a church learns that a business has been operating on their property and asks the CC Community to leave. That gives homeschool groups a bad reputation with churches.

Listen to her comments at the 22:20-23:16 minute mark. She encourages CC Directors to fully understand the kind of business they are setting up and that just because it is a low-profit (or no profit) business does not make it a legitimate, nonprofit organization.

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Are you considering converting your CC Community from a business to a legitimate nonprofit organization?

My webinar on Create A Nonprofit for Your Homeschool Community can help. It’s only $10 and runs 90 minutes. Typically you would pay $150 for an hour and a half of my time, so the webinar is a bargain.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders