Can excess supply fees be used to pay other expenses?

Our homeschool co-op charges families a registration fee to cover administrative costs and a per-class supply fees to cover supplies/materials for individual classes. This past year we have a pretty good surplus on supply fee income.  Teachers ended up not needing to purchase the supplies they anticipated.  But we are running a little short on the administrative side.  Are we able to use some of the supply fee income to cover those outstanding administrative costs?  Or should we leave that alone and dip into our contingency fund for those admin costs?  Any advice is greatly appreciated.

Thank you for being such a valuable resource to homeschoolers!
Regards, Julie

Julie,

Your homeschool nonprofit organization can certainly use excess supply fees to cover administrative costs. Your leadership has a fiduciary duty to manage the program and part of that is managing the finances to shift expenses around if needed.

The only time that shifting expenses is not permitted is if a donor specifically designates their gift be spent on a specific program or event. Then the nonprofit must honor the donor’s request. Many nonprofits do not accept designated gifts because it ties the hands of the leadership in using the funds where most needed.

In general, I advise homeschool groups to avoid multi-part fee structures, where every fee is tied to an expense. For example, some homeschool groups charge several fees: a facility fee, insurance fee, supply fee, etc. Instead of all these fees, I recommend homeschool groups do what private schools and colleges do: charge one large fee.

Your treasurer and board will know what needs to be paid from that fee (rent, insurance, supplies, etc), but then it is easier to pat all the expenses and not feel guilty!

Creating a budget

Need help creating a budget so that your fees cover all your expenses?

Money Management in a Homeschool Organization explains how to create a budget, monitor it, and inform your board of the financial health of your organization with clear, easy-to-understand financial reports. Specifically written for treasurers of homeschool organizations.


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

The IRS and Cooperative Fundraising

irs1

Carol,

My homeschool group does several fund raisers where we divide the proceeds to each family to reduce the parents’ tuition. We have a shoppers reward program and I track how much of a tuition credit each parent earns by using their shoppers reward card.  We also let students or parents work off some tuition by volunteering to work a shift at our city’s major league baseball stadium concessions.  The team makes a donation to our homeschool group (a 501c3 organization).  I’m having a hard time finding information on the IRS website about these types of fund raisers.

Susan in Ohio (paraphrase from a spoken conversation)

Susan,

I’m sorry you found it so difficult to find information about fundraisers like your group is running. Sometimes you have to know the correct language to use in a search.

IRS Guidance on cooperative fundraising

The IRS does have a document titled Athletic Booster Clubs: Are They Exempt? written n 1993. I’ve read this document several times. It is a document that the IRS uses to train their employees. While it addresses athletic booster clubs, the principles apply to school booster clubs and homeschool groups that do fund raising.

Here is a white paper by Sandra Pfau Englund, an attorney with Renosi Law, P.A. www.nonprofitlaw.com where she explains the IRS’s 14 page document.

Her conclusion on what the IRS calls cooperative fundraising (fundraising activities in which individuals receive credit for funds raised) are pretty serious:

The following key conclusions are made based on a review of the federal law and the limited IRS writings regarding
cooperative fundraising and IFAs:
1. The IRS has found that engaging in cooperative fundraising activities using of individual fundraising accounts
(IFAs) may disqualify an organization for federal tax?exempt status under section 501(c)(3);
2. Cooperative fundraising activities are not strictly prohibited under federal law and IRS rules, and the IRS’
analysis and arguments are not convincing;. however,
3. If booster clubs engage in cooperative fundraising activities it is recommended that such activities make up only
an insubstantial amount of the booster clubs overall activities.

https://parentbooster.org/resources/documents/cooperative%20fundraising%20activities%20white%20paper.pdf

Ms Pfau Englund also founded an organization called ParentBoosterUSA. Her blog post on Athletic Booster Clubs Face Intense Scrutiny: 5 Tips to Keep Out of the Penalty Box is worth reading.

Your question about fund raising by working concessions at MLB games is also considered cooperative fundraising if you give credit to the participating families and therefore strongly discouraged by the IRS and most nonprofit experts.

Conclusion

I agree with ParentBoosterUSA, if you are using cooperative fundraising and giving credits or divide the proceeds among the participating families: STOP. Now. Use fundraisers to support the entire homeschool organization. Focus on paying for events or equipment that the entire group uses. Do not “credit” fundraiser proceeds to individuals or families based on the amount of funds raised or volunteer hours worked. 


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Are fundraisers harming your chances for tax exempt status?

Many homeschool organizations depend on fund raisers to help run their homeschool co-ops and support groups. These fund raisers could actually harm a group’s chances of obtaining tax exempt status.

Fundraiser income was significant for this homeschool group

Julie is treasurer of a homeschool co-op in Oklahoma that desires to file for 501c3 tax exempt status with the IRS. I examined her financial statements and saw that the group depended heavily on profit from fund raisers including candy, food and flower sales. These fund raisers required Julie to collect over $12,000 a year in sales. The co-op made a profit of nearly $4,000 every year from their fund raisers.

“It’s a blessing to the co-op, because many of our families cannot afford even the small co-op fees we charge. And friends and neighbors beg us to keep selling our products, especially the locally made food.”

The profit from the fundraisers was actually more than the amount collected in co-op dues.

Unfortunately, with most of the co-op’s income coming from fundraisers and not membership fees or the group’s educational programs, the IRS may not grant Julie’s co-op 501c3 tax exempt status.

The IRS requires a significant portion of your income come from public support (i.e., the dues from your families or your programs) and not from an “unrelated businesses” (i.e. selling products in a fund raiser). The IRS defines “significant” in this situation as having more than 1/3 of your income come from public support.

IRS exceptions

Fortunately for Julie’s group, the IRS has several exceptions. One of them worked for Julie’s group. Her fundraising efforts were all done by volunteers and so the IRS considers that fundraiser as not being “unrelated business income” and that means they meet the 1/3 test mentioned above.

The IRS rules and exceptions for “unrelated business income” get a bit complicated and both the homeschool leader and I did our research. We were very careful and thorough when explaining the fund raising program to the IRS when Julie’s nonprofit filed for tax exempt status with the IRS.

More information about fundraisers

If your group has concerns about their fundraising practices, these related blog posts might help:

The IRS’s Word on Fundraising Do’s and Don’ts

The IRS and Fund Raising

What does the IRS mean by not allowing “private benefit” in a fund raiser?

…working to keep you on  the right side with the IRS!


My book Money Management in a Homeschool Organization has been helpful to hundreds of homeschool groups. It includes a chapter on “Easy Fundraisers” too!

_____________________________________

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

What does it take to be a nonprofit?

For years, I have heard homeschool groups leaders say things like this:

“We’re not an official nonprofit.”

“We’re not a recognized nonprofit?”

“We’re not a registered nonprofit”

Or sometimes, the leaders say this:

“We’re a nonprofit but we don’t have bylaws.”

“We’re a nonprofit, but we don’t have a board.”

So this blog post will explain what it takes to become a nonprofit organization!

Three things you need to be a nonprofit:

1. Board: Chose a group of at least 3 unrelated people to lead the group so no one carries the burden of leading alone (and because it is required in most states).

2. Bylaws: Write up bylaws to structure your group. This is the basic formation document that establishes a nonprofit, its purpose and basics of how it is structured.

Sample bylaws here

3. A purpose or mission other than to make money! For homeschool groups their purpose is education, usually the education of children, but it can be education of parents as well.

But we’re not an “official” nonprofit

So what do homeschool group leaders mean when they say their group is not “official” or “registered”?

They probably mean that they have not formed a nonprofit corporation in their state (which is done by filing Articles of Nonprofit Incorporation) in their state.

Advantages of Nonprofit Incorporation

But these “unofficial” groups may not realize it, but they have probably formed a unincorporated nonprofit association when tho or more people gathered for a common purpose or cause. Unincorporated nonprofit association the default when two or more people unite for a common purpose to benefit the public in some way.

They ARE a nonprofit, just an unincorporated nonprofit! 🙂

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.

Stephen Fishman, J.D., https://www.nolo.com/legal-encyclopedia/what-an-unincorporated-nonprofit-association.html

So dear homeschool leader, if your group is two or more people united for a common purpose to benefit the public, call yourself what you are: an Unincorporated nonprofit association!

If you lack bylaws

Well, your group may not need bylaws if it is just a gathering of friends like a playgroup or a group that informally meets for park days or field trips.

But if your group has a bank account, charges fees, needs insurance, rents space, and has some sort of leadership, then you should create bylaws.

Most state laws for nonprofits require some sort of “formation document” and bylaws can be that formation document. Other formation documents are Articles of Incorporation for nonprofit corporations or Articles of Association for unincorporated nonprofits.

I offer sample bylaws to get you started

If you lack a board

Every group (except the informal gathering of friends, playgroup or park group) needs to have leaders-at least 3 is recommended by most nonprofit experts. A nonprofit should not (and legally CANNOT) be operated by one person.

So gather two other people who show an interest in your group’s activities and purpose. Ask them to help you lead. It will more firmly establish that you are a nonprofit and lessen the burden on you.

If you lack a board or leaders, then this homeschool group you’ve been running could be seen by the law as your business-which means you were supposed to be reporting the income and expenses to the IRS! And it also means that you are 100% responsible for any bad thing that happens when your group gathers! That’s pretty risky!

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.

Stephen Fishman, J.D., https://www.nolo.com/legal-encyclopedia/what-an-unincorporated-nonprofit-association.html

Get your act together

So it’s not that hard to establish an unincorporated nonprofit association. You may have done it without realizing it!

  1. Assemble a board of at least 3 people to help lead
  2. Create bylaws
  3. Clarify your purpose and include it in your bylaws

Helpful Resources for the next step

Your group may need to move beyond the unincorporated nonprofit association to be an “official” nonprofit (meaning a nonprofit corporation) if your group collects money, needs insurance, or involves more risk, especially if your group involves children who are risk-magnets!

These resources will help you grow beyond the informal gathering of friends to official nonprofit status:

Board Training video set: Training in the roles and duties of board members and how to run a board meeting

Board Member Manual: a template for board member binders to keep important information

IRS and Your Homeschool Organization: 501c3 Tax exempt Status book that explains nonprofit incorporation and applying for 501c3 status

Create a Nonprofit Webinar: 90 minute webinar that explains forming a board and a nonprofit corporation.


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Should I start a homeschool co-op with volunteers or an academy with hired teachers?

I’m considering starting a homeschool group. How did you decide on a co-op with all volunteer teachers versus an academy with hired teachers? I think I have some moms who would be interested in participating, but I really don’t know yet.

I have briefly looked at your information and will continue to dive deeper, but would certainly love to hear your personal experiences, particularly if there is anything you would do differently.

Becky Abrams, a homeschool group leader in Oregon, and a consultant to other group leaders, has run both an all-volunteer co-op and an academy (she calls it a “hybrid homeschool program”) with hired teachers.

She has several blog posts at HomeschoolLeaders.com on paying employees.

Becky would be happy to do a phone consultation with you to sort through this decision. Contact Becky

Here’s a podcast interview I did with Becky about how she launched her all volunteer co-op. https://ultimateradioshow.com/necessity-leads-new-homeschooler-to-start-a-homeschool-co-op/


Additionally, my friend Jamie Buckland, of Classical Program Consultant has both hired teachers and used volunteers.

Jamie explained, “We, Appalachian Classical Academy (ACA), are a nonprofit organization with 501c3 tax exempt status and we employed teachers for three years and then went to all volunteers largely due to financial constraints. There are pros and cons to having volunteers. There are pros and cons to hiring employees!”

Here’s link to a podcast HomeschoolCPA did Jamie about why ACA employed teachers for 3 years.
https://ultimateradioshow.com/should-you-pay-homeschool-teachers/


Tips and Advice

From the experience of both these leaders, I have some tips to help you make this decision:

What experience do you have in running a homeschool group? Have you been on the leadership board of a homeschool group? If you are not very experienced (at least 3 years as a leader of a group) I would stick to the all volunteer co-op. Running a hybrid/academy with paid staff if significantly more work and responsibility that a co-op.

Do you have any experience in hiring and paying employees? If not, start with the all volunteer co-op. Then work at finding a payroll company and a good Treasurer and bookkeeper. You’ll need all three if you run an academy with hired teachers.

What are the ages of your children? If they are young (elementary age), stick with the all volunteer co-op. Don’t sacrifice your own children in attempting to homeschool other peoples’ children! As your children grow older consider adding a few paid instructors and grow into a full fledged academy as your experience grows.

Do you have the time, mental, and emotional capacity to research daycare licensing, employer laws, payroll companies, background checks, increased bookkeeping and cash management that come with an academy?

Are you doing this alone or do you have a strong board? Without a strong, active board, you will not succeed in launching a hybrid/academy. You may not even pull off a small volunteer co-op with out a strong board.
So get a board! They will help you make this decision. If you lack their full support and availability to take on an academy with hired teachers, don’t do it! Wait. Grow slowly.


Are you paying workers in your homeschool organization?
Carol Topp, CPA ‘s book Paying Workers in a Homeschool Organization. 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.


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

What is a microschool?

Teacher smiling as she supervises students during academic testing.

US News contributor Andrew Bauld interviewed me about micro school or his article “What is a microschool?”

My contribution to the article was to offer my advice as a CPA to approach the endeavor of launching a micro school with caution.

Carol Topp has worked for years as an accountant for homeschool groups, and began seeing interest in microschools even before COVID-19. She advises interested parties to realize that they aren’t just starting a school but a business. And while the schools’ small size might make them initially attractive, that can also be their downfall.

“Microschools aren’t cheap. There are fewer students to spread the overheard,” she says, adding that many microschools fail because “they are too dependent on one or two families who have a few kids, and then a family moves and the school can’t afford their rent. It can be tenuous.”

https://www.usnews.com/education/k12/articles/what-is-a-microschool

The same is true of homeschool groups, isn’t it? It can be quite an undertaking!


There is a lot to consider when launching a homeschool co-op, hybrid, tutorial or other homeschool program. That’s why I launched HomeschoolCPA.com and offer blog posts, books, and webinars.


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Board Members Who Don’t Do Anything

I hear from a lot of homeschool leaders that they have board members who don’t do much. How frustrating.

Don’t ignore the problem. Do something. The problem is likely to get worse and a board member who is not participating can demoralize the entire board. But stay hopeful. Many board members need a reminder to be more conscientious. You’re all in this together. But some inactive board members may need to be let go. They may be grateful that you’ve given them a graceful way to reduce their work load or even leave the board.

Here’s some more advice from Blue Avacado’s Board Cafe collection on strategies to deal with board members who won’t do anything with a few comments from me thrown in.

Short-term strategies

  • Check to be sure that expectations were made clear to the board member before he or she joined the board. “I know you joined the board recently and I’m not sure that you realize that we ask all board members to attend the annual dinner and, hopefully, to help sell tickets. Let me explain to you what most board members do, so you can see whether you’ll be able to work on this with us.”

Here’s a good list of Requirements of Board members.to get you started.

  • Hold a board discussion at which expectations are reconsidered and reaffirmed. Agree on a list of minimal expectations for every board member, and ask people to suggest how they might individually help as well.
  • Be sensitive to possible health issues or personal reasons why a good board member isn’t participating as much as he or she has in the past.

Remember, homeschool leaders carry a lot or responsibility. Your inactive member may be having health, marriage, or parenting problems that she is not sharing with you. Show grace and compassion and she may be so grateful for your support that she becomes active again.

  • Transfer responsibilities to someone else. “I’m concerned about finishing the revision of the personnel policies. Since you’re so busy, maybe it would work out for the best if John took your notes on the policies and developed a first draft.”

The treasurer job is one of the most difficult positions to fill. If you need help with bookkeeping, my list of homeschool moms who know bookkeeping and can help you remotely.

  • Together with the board member, explore whether he or she really has the time right now to be an active board member. “I’m calling to check in with you since you haven’t been able to make a meeting in the last several months. Are you temporarily a lot busier than usual? We really want to have your participation, but if it isn’t realistic, perhaps we should see if there’s a less time-consuming way than board membership for you to be involved.”

Longer-term strategies

  • Make it possible for individuals to take a leave of absence from the board if they have health, work, or other reasons why they cannot participate fully for a while. An individual can, for example, take a six-month maternity leave or a disability leave.
  • Have a board discussion or conduct a written board survey on what makes it difficult for people to participate fully. “Are there things we can change about the frequency, day, time, or length of board meetings that would make it easier for you to attend?” “Are there things about the way that board meetings are conducted that would make it easier for you to attend or that would give you more reason to want to attend?”
  • Consider whether board participation is meaningful to board members. Have a discussion with semi active members: “I’m sensing that board participation just isn’t as significant as some board members want it to be. What do you think are the reasons, and what do you think we can do to make board membership more meaningful?”
  • Revise what is expected of board members. Perhaps responsibilities have been given to a board member that are unrealistic for any but the super-board-member. Reduce the number of committees and utilize short-term task forces or committees instead. Redesign jobs and responsibilities to fit the ability of a busy achiever to accomplish them.

The three-video set will to train your homeschool group’s board members. Many homeschool leaders have never served on a nonprofit board before so these videos explain the duties of a board, its structure, how to run a meeting, and more. For more details visit: Homeschool Board Training video set


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Get your Homeschool Board Training videos before April 11, 2022 for a bonus


Carol Topp, CPA of HomeschoolCPA.com and Becky Abrams of HomeschoolLeaders.com have released a two (soon to be three) video set to train homeschool board members. Each video runs 40-50 minutes.

BONUS: If you buy the video set before March 31, 2022 Monday April 11, 2022 you will be invited to a LIVE Zoom meeting to ask your  questions. The Zoom call will be held on Monday April 11, 2022 at 8:00 pm EDT/5:00 pm PDT.

It’s like having a CPA (Carol) and experienced homeschool leader (Becky) for an a hour (value $150) at no extra charge!

We highly recommend you watch both videos before the LIVE Zoom meeting and jot down your questions to put into the chat during the Zoom meeting.

The live Zoom meeting will be recorded and added to the video set. So you get three videos!

But joining us LIVE on Monday April 11, 2022 at 8:00 pm EDT/5:00 pm PDT means you get to ask your questions!

ANOTHER BONUS: you are allowed to share the links to the videos and slides with your CURRENT board members so everyone can learn the best tips for being on a homeschool board.

To get more details and watch a short clip visit: HomeschoolCPA.com/BoardTraining


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Can a homeschool co-op board also be paid teachers?

I have a question about the conflict of interest issue. Three ladies and I would like to incorporate to teach classes together and form a homeschool co-op.
If we are the three board members, then does that mean we can not profit by also teaching? Do you have any article that clarifies that? Thank you!

You asked, “ If we are the three board members, then does that mean we can not profit by also teaching?

Correct. Board members have a duty of loyalty to the nonprofit and cannot personally benefit from the organization.  That is considered

Correct. Board members have a duty of loyalty to the nonprofit and cannot personally benefit from the organization.  That is considered a conflict of interest, self-dealing, and possibly inurement. You are not an independent board; there is no one independent on the board to vote to hire the other members as teachers. You all have conflicts of interest.

In general, it is not a good practice for nonprofits to have paid staff also serve as board members. In some states it’s forbidden by law. For example in California a nonprofit cannot have more than 49% of its board be paid staff or related to paid staff.

Here are two articles on the duties of care and loyalty for nonprofit board members
Serving on a Nonprofit Board: What’s Required?
What are the legal responsibilities of homeschool leaders?


You have three choices:
1. Form a for-profit three person partnership. Then you all spit the profits of the partnership as your pay for operating and owning the partnership. You should talk to a small business lawyer and CPA to help you draw up a partnership agreement and understand the tax aspects.

2. The co-op operates as a nonprofit organization and would need to create an unrelated, independent board. Then the board can choose to hire you three as employees (teachers). You would relinquish the control of the group to this board.

3. The co-op operates as a nonprofit organization and you three can serve on the board as volunteers, but then the board must be larger than three people so it can have can vote (without you) on hiring any of you as paid teachers. This may work for one person with dual roles as a board member and teacher, but in general it is not a good practice for nonprofit to have paid staff also serve as board members.

Overall, without knowing more or having a consultation with you, I would recommend Option 2. You three relinquish the control of the group to an independent board who can decide to hire you. Or if that is not what you want, go with Option 3, but at most one of you can also serve as a paid teacher.


Board Training Video set

This video training set on nonprofit boards will help you understand how a board is set up and its duties to he nonprofit it serves.

The three-video set will to train your homeschool group’s board members. Many homeschool leaders have never served on a nonprofit board before so these videos explain the duties of a board, its structure, how to run a meeting, and more. For more details visit: Homeschool Board Training video set

Bonus: Buy before March 31, 2022

If you purchase video set before March 31, 2022 you will be invited to a live Zoom call in to ask for questions.
It’s like having a CPA (Carol) and experienced homeschool leader (BeckY0 for an a hour at no extra charge! The live session will be in early April 2022. It will be recorded and added to the set, so you get 3 videos!


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Board members and officers explained visually

Are you confused by the jargon used with nonprofits?

  • Board member
  • Officers
  • Executive Director

Many homeschool leaders get confused by these titles and the roles they have in a homeschool nonprofit organizations, so I created a visual way to explain these terms using a Venn diagram (can you tell I used to be a homeschool mom?!)

Here’s an excerpt from the two part video set

Board Training for Homeschool Groups

The full video set is available for purchase at HomeschoolCPA.com/Board Training.



Bonus offer: Buy before April 11, 2022


If you purchase the Board Training for Homeschool Groups video set before April 11, 2022, you will be invited to a live Zoom call in to ask hosts Carol Topp and Becky Abrams any questions you have about nonprofit boards for homeschool organizations. The live session will be offered on Monday April 11, 2022 at 8 pm EDT. The recording will be added to the video set, so you will get three videos!

The video set costs $40 and includes two videos each about 40-50 minutes and a copy of Carol Topp’s ebook Homeschool Board Member Manual..


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders