1099-NEC replaces 1099-MISC for most homeschool groups

01/22/2021 by Leave a Comment

The IRS has introduced a new form called the 1099-NEC (for Non Employee Compensation), that will replace the Form 1099-MISC for most homeschool groups and homeschool businesses like Classical Conversation Directors.

The 1099-NEC is the form your homeschool group must give to any individual that you paid more than $600 in 2020. That might be your co-op teachers, CC tutors, or independent contractors like a web designer.

It is due to the worker by January 31, 2021. A copy gets send to the IRS as well, along with a Form 1096 Summary sheet.

The Form-NEC is quite simple. You simply fill in your organization’s name, address, and Taxpayer ID Number (TIN) more commonly called your EIN (Employer Identification Number).
Then also fill in the worker’s name, address, Social Security Number and the total amount they were paid in 2020 in Box 1.

How to file a 1099-NEC

Unfortunately, you cannot download and use the Form 1099-NEC found on the IRS.gov website. It has a special red ink that home printers do not duplicate correctly for the IRS machines to read.

Instead of using paper, I recommend Yearli.com as an online service I use to file Form 1099-NEC. Yearli mails a copy to your worker, sends a copy to the IRS, and creates a pdf file for you to keep. Easy! And it’s Core plan is FREE! The Core plan should be enough for most homeschool groups.

Learn more about paying workers

Paying Workers in a Homeschool Organization

Are you paying workers in your homeschool organization?

  • Can a volunteer be paid?
  • Should a worker be treated as an employee or independent contractor?
  • Do you know the difference?

Homeschool leader and CPA, Carol Topp, has the answers to your questions in her book Paying Workers in a Homeschool Organization.

This 130 page book covers paying workers as employees or independent contractors. There are also chapters on paying volunteers and board members. It includes sample forms, tips and advice to help you pay workers in accordance with the IRS laws to help your organization pay their workers correctly. Written specifically for homeschool organizations.

Filed Under: Uncategorized

Managing records and financial statements

12/10/2020 by Leave a Comment

How are your homeschool groups’ records? Scattered, missing, lost? One homeschool group has organized all their important papers in a binder using HomeschoolCPA’s Homeschool Board Member Manual template. In this podcast episode, the leader showed Carol Topp her board binder. It was wonderful to see how helpful this board binder was to the group.

This is the fourth part of a 4-part series on tips for homeschool leaders a workshop given to homeschool leaders in Austin, Texas in February 2020.

In the 4 part podcast series Carol discusses:

  • Episode #203   Leader mindset and attitudes
  • Episode # 204 What do the duties of care and loyalty look like?
  • Episode # 205  The duty of compliance with the laws for nonprofit organizations
  • Episode #206 Managing records and finances in you homeschool group

Each episode can be found at HomeschoolCPA.com/Podcast.

Handout of the workshop: https://homeschoolcpa.com/wp-content/uploads/2020/11/Top-Tips-Handout-2020.docx

Listen to the podcast

Helpful Resources

For more information on record keeping for your homeschool group, check out these resources

Board Member Manual

Does your homeschool group need to pay taxes? Could they avoid paying taxes by being a 501c3 tax exempt organization? Do you know the pros and cons of 501c3 status? Do you know what 501c3 status could mean for your homeschool group?

Author and homeschool advisor, Carol Topp, CPA, has created a Homeschool Organization Board Manual. It is a template to create a board member binder. It has:

  • A list of important documents to keep in your binder
  • Section dividers so you can organize the important papers
  • Tools to help you run your meetings smoothly including
  • A sample agenda that you can use over and over again
  • A calendar of board meetings

Read more about the Homeschool Organization Board Manual

Podcasts #109 How to Read a Financial Statement

Podcast #110 Look at Your Balance Sheet

Free webinar recording on creating easy-to-understand financial reports: HomeschoolCPA.com/WebinarFR

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Filed Under: Money & Budgets, Podcast Tagged With:

Are hired homeschool teachers household employees?

12/08/2020 by Leave a Comment

Hello Carol!

I graduated from college in May and am currently working on my masters degree in Elementary Education. A friend put me in contact with one of her family friends for a job opportunity as a homeschool teacher while I complete my degree. I do not work for a tutoring company nor do I teach any other children besides the ones in this family.

My employer said he would send me a 1099 at the end of the year and is not withholding any income taxes from my paychecks. I am wondering if I should be paid as a household employee.

I am wondering how much I should expect to put aside for taxes.
Emma

Hi Emma,

Congratulations on your recent graduation.

Other CPAs may disagree with me, but I do not think that teachers or tutors are household employees. The IRS has a list of occupations that qualify as household employees, that is workers who do household work: “housekeepers, maids, babysitters, gardeners, and others who work in or around a private residence as an employee.” Teachers and tutors are not mentioned in that list.

The IRS explains that “Repairmen, plumbers, contractors, and other business people who provide their services as independent contractors, are not your employees. Household workers are your employees if you can control not only the work they do but also how they do it.” (emphasis added)

So since your “employer” is treating you as an Independent Contractor, you are not a household employee.

It is debatable if being treated as an Independent Contractor is the correct classification for you. You may be the family’s employee (but not a household employee), if the family directs and controls your work. I cannot determine if you are correctly classified as an Independent Contractor from what you told me.


I usually recommend that self employed workers set aside 20%-30% of their pay to federal income taxes. You will pay both federal income and and self-employment tax, which is Social Security and Medicare taxes for self-employed people. Self-employment tax is 15.3% of your net earnings (i.e., your profit from being an Independent Contractor ). Then depending on your state, you may set aside a bit more for state income taxes; I estimate about 5% for state taxes.

So that’s a total of 30-35% of your pay for federal income tax, self-employment tax and state income tax.

Ouch!

I hope the family is paying you well!


I have a helpful ebook ?Taxes for Homeschool Business Owners that will be very  helpful to you as you prepare your taxes for 2020.

Carol Topp, CPA
HomeschoolCPA.com
Helping homeschool leaders

Filed Under: Homeschooling Helps, Paying workers

The duty of compliance with the law for homeschool organizations

12/03/2020 by Leave a Comment

In addition to the duties of care and loyalty discussed in the previous episode #204, homeschool leaders have a duty of compliance with the law. What laws to leaders need to know about? What does a duty of compliance look like?

This is the third part of a 4-part series on tips for homeschool leaders a workshop given to homeschool leaders in Austin Texas in February 2020.

Carol Topp, CPA discusses three main areas of compliance:

  1. IRS filings and taxes
  2. Your state filings for nonprofit organizations
  3. Workers classification as an employee or independent contractors

In the 4 part podcast series Carol discusses:

  • Episode #203   Leader mindset and attitudes
  • Episode # 204 What do the duties of care and loyalty look like?
  • Episode # 205  The duty of compliance with the laws for nonprofit organizations
  • Episode #206 Managing records and finances in you homeschool group

Each episode can be found at HomeschoolCPA.com/Podcast.

Handout of the workshop: https://homeschoolcpa.com/wp-content/uploads/2020/11/Top-Tips-Handout-2020.docx

Listen to the podcast

Helpful Resources

For more information on the IRS and state filings for your homeschool group, check out these resources

The IRS and Your Homeschool Organization

Does your homeschool group need to pay taxes? Could they avoid paying taxes by being a 501c3 tax exempt organization? Do you know the pros and cons of 501c3 status? Do you know what 501c3 status could mean for your homeschool group?

I have the answers for you in my book The IRS and Your Homeschool Organization. The information I share in my book has been helpful to homeschool support groups,

Podcasts #64 Annual Reports

Podcast #74 Keep up to date with state filings

A helpful webinar on IRS and state-required filings for nonprofit organizations HomeschoolCPA.com/Filings

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Filed Under: Boards, Podcast Tagged With:

Homeschool mom has concerns about Classical Conversations

11/24/2020 by Leave a Comment

I’ve written several blog posts answering questions from Classical Conversations (CC) Directors regarding:

Usually these issues affect CC Directors the most since they are the business owners that carry the responsibility and liability for operating a licensed CC Community that is compliant with local, state, and federal laws.

But sometimes the individual families in a CC Community are affected by these issues as well.

Homeschool blogger at As for Me and My Homestead, Jamie, wrote a blog posts titled, “Why My Family Left Classical Conversations.” In her post she outlines several reasons her family left CC after four years.

If you scroll to the end, she explains several business practices that she found concerning enough to make the decision to leave behind a group of homeschool families she deeply enjoyed and loved.

Through all the rest of this, I pushed the nagging, “something isn’t quite right” issues out of mind, and tried to focus on the positives.  Fortunately for me, the person who brought the errata sheet to my attention also invited me to join a Facebook group where I learned more about Classical Conversations that went beyond the mistakes and poor curriculum.

Jamie writes about several issues that bothered her including:

  • CC Corporate calling themselves (and the Directors’ businesses) a “ministry,” which can be misleading
  • Communities (as for-profit business) using churches
  • Misclassifying tutors as Independent Contractors
  • CC Corporate and local Directors using teenagers and parents as volunteer labor

She calls these issues “the tip of the iceberg.”


It’s never easy to publicly criticize a homeschool program, especially if your friends are still enthusiastic about it.

Jamie ends her post with this wish:

My hope is that in reading this, other families will see that CC is a corporation that is not operating in a godly manner, while claiming the name of God, and will find out that they could do so much better with their money & time, than join a CC community.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Filed Under: Nonprofit status, Paying workers, Volunteers

What do the Duties of Care and Loyalty look like?

11/19/2020 by Leave a Comment

HomeschoolCPA Carol Topp frequently mentions that homeschool leaders have a duty of care and loyalty to their groups. What does a duty of care look like? How does a leader know know if she is being loyal?

This is the second part of a 4-part series on tips for homeschool leaders a workshop given to homeschool leaders in Austin Texas in February 2020.

Some of the ways to demonstrate a duty of care and loyalty for a leader include:

  • Have Board meetings
  • Manage the money well
  • Have insurance
  • Avoiding conflict of interest
  • No self dealing (the board gives itself discounts)

In the 4 part podcast series Carol discusses:

  • Episode #203   Leader mindset and attitudes
  • Episode # 204 What do the duties of care and loyalty look like?
  • Episode # 205  The duty of compliance with the laws for nonprofit organizations
  • Episode #206 Managing records and finances in you homeschool group

Each episode can be found at HomeschoolCPA.com/Podcast.

Handout of the workshop: https://homeschoolcpa.com/wp-content/uploads/2020/11/Top-Tips-Handout-2020.docx

Listen to the podcast

Helpful Resources

Money Management in a Homeschool Organization

  • Does your homeschool group manage their money well?
  • Do you have a budget and know where the money is spent?
  • Do you know how to prevent fraud?

This 115 page book will help you to open a checking account, establish a budget, prevent mistakes and fraud, use software to keep the books, prepare a financial statement and hire workers. Sample forms and examples of financial statements in clear English are provided.


A checklist of best practices to avoid embezzlement. It is available at HomeschoolCPA.com/Fraud

Podcast # 105 Podcast episode on preventing fraud

How to avoid self-dealing. The board cannot vote themselves benefits like discounts.  Listen to Podcast #71 on how to thank volunteers without self-dealing.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Filed Under: Boards, Podcast Tagged With:

Can a homeschool group be charitable? Maybe not!

11/17/2020 by Leave a Comment

I love knowing that  most homeschool groups are generous, especially toward families in financial need. They deliver meals, take up collections, and waive fees for a needy family.

But should a homeschool group serve as a charity?

Maybe, but maybe not.

Here’s a true story..

A homeschool group was given $5,000 with the specific purpose of gifting to members in the group that were experiencing difficult financial times.  They told me, “Our instructions from the donor was to gift it to members that were going through difficult financial times due to unemployment or illness.”

It was very nice of the donor and the organization to have a concern for the afflicted families in their program.

But this homeschool group has 501(c)(3) status as a religious and educational organization. There is no mention of “charitable” purpose in their founding documents (their Articles of Incorporation), or in their tax exempt application with the IRS.

Basically, they were not given tax exempt status to be collecting and distributing funds to needy people (i.e. charity).

Here’s part of what I wrote to them:

In general, your homeschool organization should not serve as a charitable conduit for someone to make a gift to a needy family (or families). The reason is because your 501(c)(3) status was for educational purposes, not charitable to help needy families with financial needs. Additionally, the donor used your homeschool organization to get a tax deductible donation, when he or she should have given the money as a gift (i.e. not tax deductible) to the needy families.

If you told me that you used the $5,000 to start a benevolent fund and reduced the tuition for several families, I’d say the IRS may approve that use of the money. Your homeschool organization is not a “charity” and should not be used to funnel money to a needy family, nor should you let your 501(c)(3) status be used to give a donor a tax deduction for what is a gift to an individual(s).

You were given tax exempt status for specific purposes. Stick to the purposes you told the IRS: educational and religious.

Now, I’m a religious person (a Christian, to be exact), so to me being generous and helping the needy is related my religious beliefs and this homeschool group may argue the same. But they should have been more clear in their explanation to the IRS and their organizing documents.

My advice to them is to:

  1. Not accept donations that are ear marked for helping the financial needs of a family. Direct the donor to other charitable organizations.
  2. Not give cash or checks to a needy family, but instead offer tuition discounts on their program to keep in line with their educational purposes.
  3. Not let your homeschool organization be used as a conduit for financial transactions that are outside of your exempt purpose.

All homeschool leaders should pull out their founding documents (their Articles of Incorporation and bylaws) and their tax exempt application with the IRS (Form 1023 or 1023-EZ) to refresh their memory on their organization’s stated purpose.

Then stick to that purpose.

The Homeschool Organization Board Manual will help you keep your important documents  in a binder for easy access.

Your board may wish to create a donation acceptance policy and include the 3 points above.

Carol Topp, CPA
HomeschoolCPA.com

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Filed Under: 501(c)(3) status Tagged With: , , , , ,

Mindset for Homeschool Leaders

11/12/2020 by Leave a Comment

HomeschoolCPA, Carol Topp spoke to a group of homeschool group leaders in Texas about a good mindset and attitudes that are necessary for leading a homeschool group. In this episode Carol reminds leaders of three things they may have forgotten:

  • You cannot be all things to all people-so stop trying!
  • Your organization is not essential to the success of homeschooling!
  • You are not responsible for homeschooling other peoples’ children!

This is the first part of a 4-part series on Tips for Homeschool Leaders, a workshop given to homeschool leaders in Austin Texas in February 2020.

In the 4 part podcast series Carol discusses:

  • Episode #203   Leader mindset and attitudes
  • Episode # 204 What do the duties of care and loyalty look like?
  • Episode # 205  The duty of compliance with the laws for nonprofit organizations
  • Episode #206 Managing records and finances in you homeschool group

Each episode can be found at HomeschoolCPA.com/Podcast.

Handout of the workshop: https://homeschoolcpa.com/wp-content/uploads/2020/11/Top-Tips-Handout-2020.docx

During the podcast Carol mentioned the I am a Homeschool Group Leader Facebook group. Please join us!  https://www.facebook.com/groups/72534255742/

Listen to the podcast

Featured Resource

Phone Consultation with Carol Topp, CPA

Phone Consultation: A pre-arranged phone call to discuss your questions about being a homeschool group leader. My most popular service for homeschool leaders. It’s like having your own homeschool expert CPA on the phone!

Cost: $85/hour to nonprofit organizations. $100/hour to for-profit businesses. $60 minimum.

Contact HomeschoolCPA, Carol Topp, CPA, to arrange a telephone consultation.Click Here to request more information!

Filed Under: Boards, Podcast Tagged With:

Has your homeschool group registered with your state’s Attorney General?

11/10/2020 by Leave a Comment

A homeschool group in Illinois formed in 2020. They filed paperwork with the Illinois Secretary of State to form a nonprofit corporation, got an EIN (Employer identification Number) from the IRS to open a checking account, and started running their homeschool program. They thought that was all that needed to be done.

Unfortunately the group never registered as a charitable trust with Illinois.

These kinds of situations come up fairly frequently here at HomeschoolCPA. I help homeschool groups understand their required reporting to their states.

So I helped this group understand Illinois reporting requirements. When I do that I always search the state laws for exceptions–situations where the nonprofit can avoid more government paperwork.


Most states want nonprofit organizations to register in their state and then most states have annual reporting requirements as well.


Did I find an exemption to registering as a charitable organization (called a charitable trust in Illinois) for this homeschool group? And what about the annual reports?

Maybe!

Illinois requires every charitable trust to resister with the Attorney General. They do allow an exception for religious organizations (churches), but even they must submit an application to be exempt from annual reports.

So this homeschool group should be registered with the Illinois Attorney General. And every homeschool nonprofit organization in Illinois should be registered with the Illinois Attorney General


But it may not need to file annual reports!

The Illinois Charitable Trust Act says this:
Exception: ” Any charitable organization which does not intend to solicit and receive and does not actually receive contributions in excess of $15,000 during any 12 month period ending December 31 of any year. However, if the gross contributions received by such charitable organization during any 12 month period ending December 31 of any year shall be in excess of $15,000, it shall file reports as required under this Act and the provisions of this Act shall apply.

https://codes.findlaw.com/il/chapter-225-professionsoccupations-and-business-operations/il-st-sect-225-460-3.html

“Contributions” includes donations and proceeds from fundraisers. It does not include your income from tuition, fees for offering your program, membership fees or dues.

Additionally, Illinois offers an exemption from annual reports to several specific types of organizations (Boys Club, school parent-teacher associations, etc), but not a homeschool program.

Research showed…

This homeschool group needed to register with the Illinois Attorney General, but since they did not receive more than $15,000 in donations and fund raisers, they did not have to file annual reports with the Illinois Attorney General.


Conclusion: Illinois nonprofit homeschool groups should register with the Attorney General.


Additionally, if your Illinois homeschool organization receives more than $15,000 in “contributions” it must file annual reports with the Illinois Attorney General as a charitable organization.

What about your state?

This reference guide lists the charitable solicitation requirements by state.
https://www.lowenstein.com/media/4152/final-charitable-solicitation-survey.pdf

You should look up your state and see if your homeschool group needs to register and see also if they should be filing annual reports.

Alarming stats

The Illinois Attorney General lists 8 organizations with “homeschool” or “home school” in its name. Yet the IRS Exempt Organization database lists 18 organization in Illinois with “homeschool” or “home school” in its name.

That means 55% of Illinois homeschool organizations never registered with the Illinois Attorney General!

Why have these homeschool groups not registered with the State of Illinois?

  • Ignorance of the Illinois Attorney General requirements.
  • The homeschool group did not use a professional who walks them through all issues of state compliance. HomeschoolCPA can do that. See below.
  • The homeschool group didn’t want to know about the state forms since the paperwork is a headache. But willful ignorance of the law is not a good excuse!
  • They thought they were exempt from registering since they don’t “solicit funds.”

So what?

Illinois can assess a fee for failure to register or failure to file reports of $500 to $1,000. Source: (760 ILCS 55/5)(from Ch. 14, par. 55)

In general, the states don’t want to assess fines; they just want your homeschool group to be compliant, resister and file annual reports.

What should you do now?

  1. Watch Homeschool CPA’s IRS and State filings webinar. This 60 minute webinar ($10), explains the typical filing requirements for states and the IRS. It’s a great place to understand your filing requirements and launch the research for your specific situation.
  2. Look up your state’s charity registration requirements.

    Here’s a good resource (a pdf from 2017) for charitable solicitation registration (but there may be more state reports than just this one!): https://www.lowenstein.com/media/4152/final-charitable-solicitation-survey.pdf

    I’ve also done research using this site: Harbor Compliance https://www.harborcompliance.com/information/nonprofit-compliance-guide
  3. If you’d rather not do the research yourself, you can hire HomeschoolCPA to do the research and compose a letter, gather all the forms and help you know what to do.

Carol Topp, CPA
HomeschoolCPA.com

Filed Under: Nonprofit status

My Homeschool Group is an Unincorporated Association. What Does That Even Mean?

11/03/2020 by Leave a Comment

Carol, My homeschool group has been around for 20 years. I was told that we are an “unincorporated association.” What does that mean?

-Lisa

Lisa,

You ask an excellent question. I’m going to share a reply from an attorney Stephen Fishman from Nolo.com, the publisher of very helpful legal book. I have several Nolo books on my shelf.

What is An Unincorporated Nonprofit Association?

By Stephen Fishman, J.D.

What happens, legally speaking, when a group of people get together and decide to perform some task without filing any legal paperwork or establishing any formal legal structure? Whether they know it or not, they have formed an unincorporated association. “Unincorporated association” means an unincorporated group of two or more persons joined by mutual consent for a common lawful purpose, whether organized for profit or not.

Now, if the lawful purpose they’ve joined together to accomplish includes earning a profit, their association is automatically a partnership or joint venture for tax and most other legal purposes. For example, if two people get together and decide to operate a food truck, they’ve formed a partnership, even if they file no paperwork.

But, if the purpose for the association is to benefit the public some way, and does not include earning a profit, the association’s members have formed an unincorporated nonprofit association. People form nonprofit unincorporated associations all the time; often without being aware of it. For example, if you and several of your neighbors get together to help raise funds to keep your local library branch open, you’ve formed an unincorporated nonprofit association.

Source: https://www.nolo.com/legal-encyclopedia/what-an-unincorporated-nonprofit-association.html

So that’s what your homeschool group is: an association of people trying to benefit the public in some way. in your case, you are benefiting families who homeschool their children in your local area.

Drawbacks to unincorporated association

But Mr Fishman, the attorney rom Nolo.com goes on to warn that unincorporated association has some drawbacks…

The biggest drawback to the unincorporated nonprofit association, and the reason nonprofits often abandon this form in favor of a nonprofit corporation, is that it has no separate legal existence apart from its members. Because it is not respected as a separate legal entity, its members generally can be personally liable for its debts and liabilities. Some states, such as California, give some limited liability to nonprofit association members; but it’s not as good as the protection obtainable from a nonprofit corporation. Moreover, unless your state law contains an “enabling statute” granting such rights entities, an unincorporated association cannot hold or receive property, or sign contracts, in its own name.

Because of these limitations, nonprofit unincorporated associations are usually used to accomplish limited short-term goals, such as raising funds for a library. Nonprofits with long-term missions should usually incorporate. For more on incorporating, see Nolo’s article, Five Reasons to Incorporate Your Nonprofit.

Let me rephrase what Mr. Fishman is saying: Most homeschool nonprofits don’t stay as unincorporated associations. They file paperwork in their state (called articles of Incorporation) to form a nonprofit corporation. Nonprofit corporate status offers legal protection for members and leaders by limiting the liability to the nonprofit’s assets. The members and leaders are not personally liable for the debts of the nonprofit if they are sued. That helps leaders sleep better at night!

I also appreciate his point that groups that are temporary can get by with being an unincorporated association. But homeschool nonprofits with longevity should seriously consider filing the paperwork to become a nonprofit corporation.

Homeschool groups dealing with children are at higher risk as are larger homeschool programs with bigger budgets. They should file the paperwork to be a nonprofit corporation in their state.

Resources

My book the IRS and Your Homeschool Organizatoin discusses nonprofit incorporation, its benefits and costs.

These podcast episodes discuss nonprofit incorporation:

Nonprofit Incorporation for Your Homeschool Co-op
Starting a Nonprofit: Nonprofit Incorporation

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Filed Under: Nonprofit status