Tax and record keeping help for CC Directors

Carol,

I will be a director with Classical Conversations (TM) for the upcoming year and I wanted to keep track with all finances and stay on top of all the things for taxes but I am unsure of how to do that or find someone knowledgeable with something like Classical Conversations.

Would you be able to direct me in a better direction with things?

-Jillian M


Jillian,

Good for you to realize that directing a Classical Conversation program is a business and you need to be concerned about taxes and record keeping. Sadly, I have heard from many CC Directors that they had no idea they were running a business. Some have made terrible mistakes in their tax filings.

I have several resources for you:

Taxes for Homeschool Business Owners

The ebook is 60 pages long and contains information on

  • Business Start Up
  • LLC status
  • Tax Deductions
  • Tax Forms
  • Sample Tax Returns
  • Self Employment Tax
  • Paying Yourself
  • Paying Others
  • Businesses Using Churches
  • Should My Homeschool Program Be a Nonprofit?

Business Q&A for CC Directors: Answers You Need to Run Your CC Business

This 50 page ebook is a collections of questions CC Directors have asked the HomeschoolCPA, Carol Topp, CPA over the past few years. Carol answers each question and cover topics such as:

  • Business Set up: LLC status, nonprofit, ministry or business, checking accounts, record keeping
  • Relationship with your church-host: taxes for the church
  • Taxes: What forms to file, 1099-MISC, tax deductions
  • Employees: Independent Contractor or employee

I hosted a webinar on Tax Preparation for Homeschool Business Owners. It should be a lot of help to you as a CC Director. You can watch the recording at HomeschoolCPA.com/HSBIZTAXES for a small fee of $10.


Bookkeeping spreadsheet for CC Directors is a free download.

I hope that helps!


Carol Topp, CPA
HomeschoolCPA.com
Helping homeschool leaders

Getting an EIN from the IRS

Many homeschool organizations find they need to open a checking account for their group expenses. The bank or credit union will ask for an EIN, Employer Identification Number. This number is similar to a Social Security Number for a business or nonprofit organization. It’s actually misnamed. You don’t need to be an employer to obtain an EIN. They are offered for free by the IRS.

Sometimes a leader opens a checking account and uses her Social Security Number (SSN). This is not recommended. If a personal checking account is used for handling the homeschool organization’s business, the cash in it could be seen as the leader’s personal income in the eyes of the IRS. I’m sure she doesn’t want that! Additionally, an unpopulous leader could run off with the money that is the organizations and there is nothing the organization can do about it!

Before you get an EIN

Before you get an EIN, you must first properly and legally form a legal entity. The IRS puts it like this: “If you believe your organization qualifies for tax exempt status (whether or not you have a requirement to apply for a formal ruling), be sure your organization is formed legally before you apply for an EIN.

To legally form a nonprofit organization you need three things:

  1. A board of at least three people (preferably unrelated).
  2. Bylaws which explain the mission and structure of the organization. If you don’t have bylaws. Sample bylaws are available at HomeschoolCPA.com/Samples
  3. An “organizing document” which would be either Articles of Incorporation (highly recommended and most common) or Articles of Association for an unincorporated association. Articles of Incorporation are filed in your state, usually the Secretary of State office. Most states have a form for you to use.

Sample Articles of Incorporation or Articles of Association are available at HomeschoolCPA.com/Samples.

I compare forming a new organization to birthing a baby. Only after the baby is born can you apply for a SSN. The same is true for birthing a nonprofit organization. First the “baby” nonprofit must be born by a board drafting bylaws and filing Articles of Incorporation with their state. Then the baby nonprofit can apply for an EIN.

Getting an EIN from the IRS

Go to www.irs.gov/taxtopics/tc755.html for more information on the EIN. The IRS uses Form SS-4. I highly recommend you look it over carefully. Keep a copy for yourself.

To get your EIN quickly, apply on line by going to the IRS Online EIN service at https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online

After all validations are done you will get your EIN immediately upon completion. You can then download, save, and print your EIN confirmation notice.

EIN Tips:

  • Under Type chose” View Additional Types” and then “Other Nonprofit/Tax Exempt Organizations.” Educational organizations (which is what homeschool groups are, falls into this category).
  • Under “Reason for applying,” check the box “New business” or “Banking purposes”
  • The “Responsible party” is the person who exercises ultimate effective control over the entity. This is any one of the officers (Chair, Secretary or Treasurer). Some people are concerned about giving their Social Security Number to the IRS. This does not tie your personal taxes to the homeschool organization. It’s just the IRS’s way to be certain a true, living human being is applying for the EIN. The Responsible party can be changed in the future by filing IRS Form 8822-B. 
  • Your name on the EIN must match your legal name chosen when you filed Articles of Incorporation with your state’s Secretary of State.

If you have questions about applying for an EIN or the Form SS-4, read the chapter on “Checking Accounts Done Right” in my book Money Management in a Homeschool Organization

If you have questions about setting up or running your homeschool organization, visit HomeschoolCPA.com or consider a private phone consultation.


Carol Topp, CPA

HomeschoolCPA.com

Homeschool teachers or CC tutors: Stuck inside? Start doing your taxes!

Who would have thought that when I wrote this blog post in March 2020, that we would still be stuck inside because of the COVID-19 pandemic?

But tax season rolls around each year. So here we go again!

Are you stuck inside because of illness, social distancing, or the corona virus? Well, it’s a good time to work on your tax return!
(Not what you wanted to hear, I’m sure!)


I hear from lots of CC Directors and tutors about their taxes. It can be confusing running a business, paying tutors, etc.

If you’re confused about takes, I have a book for you!

I am pleased to offer my book, Taxes for Homeschool Business Owners!
Read more here.

I have spoken and emailed with so many CC Directors, tutors and teachers at homeschool programs that are confused about their taxes. This is my attempt to keep you out of trouble with the IRS!

This ebook is a great resource for:

  • Tutors or teachers for a homeschool program paid as an Independent Contractor
  • Classical Conversations(R) Directors
  • CC tutors
  • Coaches, musicians, artists, etc. hired to teach at a homeschool co-op


The ebook is 60 pages long and contains information on

  • Business Start Up
  • LLC status
  • Tax Deductions
  • Tax Forms
  • Sample Tax Returns
  • Self Employment Tax
  • Paying Yourself
  • Paying Others
  • Businesses Using Churches
  • Should My Homeschool Program Be a Nonprofit?

I hope you find the ebook helpful this tax season!

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Managing records and financial statements

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

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

How do you create a budget with uncertainty?

Laura is a new homeschool leader struggling with figuring out what to charge for her program. She asked this question on the I am A Homeschool Group Leader Facebook page

If you are a small homeschool group, how do you figure out costs? We know for the space for the year it will cost us $900. We want to split it as equally as possible but without knowing the total number going to register, we don’t know what to divide it by. -Laura


Laura,
In accounting there are fixed expenses (like your rent or website fees which does not vary with the number of families you serve) and variable expenses, which vary depending on the number of families you serve (like supplies and sometime insurance).

Variable expenses are usually easy to estimate and charge the families accordingly.

But fixed expenses like the website, rent, etc. need to be paid from what you charge families, too. Sometimes they are called overhead expenses. So I recommend that you estimate a minimum number of families you expect and then create a budget of what income you need to cover both the variable expenses and the overhead (fixed expenses).

Create several budgets with varying numbers of families.

Don’t be afraid to over charge. You need to accommodate for those overhead/fixed expenses.

I see lots of homeschool groups charging several fees for every last expense like $9 for insurance, $5 for the website, $20 for supplies, etc. That assumes that everything is a variable expense, but it’s not.

Instead, just charge the families one round dollar amount. Make sure it’s large enough to cover the variable expense, the overhead (fixed) expenses, and a buffer.

You need a buffer for unexpected expenses or surprises like a global pandemic!


Want advice from other homeschool leaders? Join with 1300 other homeschool leaders on the I am A Homeschool Group Leader Facebook page
We offer ideas, feedback and encouragement that only other homeschool leaders would understand!


Other leaders in the Facebook group ‘ offered this advice:

You might start by deciding what the maximum amount your families would be willing to pay. For example, if you don’t want your families to pay more than $50 per family for the use of space, you know you need a minimum of 18 families (to cover a $900 facility fee).

Our first year, we took our best wild guess at how many families we thought we would have. We underestimated just to be safe. We had money left over because we had more families join than we budgeted for which was great. That allowed us to have some buffer money in case we had years with low enrollment.

In my experience it is always better to slightly overcharge rather than undercharge. It’s a great thing to have enough money to pay for unanticipated costs without having to ask the families (for more money) every time.


You might find my book Money Management is a Homeschool Organization helpful. I discuss budgets and show a few sample budgets.


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

A budget can reduce stress

 

As a homeschool leader, are you “a people person” and hate dealing with numbers or a budget? Do numbers or a budget stresses you out?

Numbers on a budget can help homeschool leaders plan and look to the future. A budget can do a lot to reduce stress.

If you make a plan and know what might be coming, it will help you set priorities.

 

I’m writing this during the COVID-19 pandemic, something none of us planned for!  But hopefully, we will be returning to “normal” (whatever that will look like!) sometime soon.

Aren’t we glad that many scientists and hospitals had already made pandemic plans? Yes, we have had shortages and problems, but we’ve coped a lot better because some leaders made plans.

A budget helps you and your leadership team ask yourselves :

  • What is important to us in our group? Is it cost, convenience or quality? You cannot offer all three! Choose two.
  • Is it important that we keep the cost extremely low? A budget that aims for low cost is going to be a very different budget than one aiming for top quality.

Good, easy and cheap. Your homeschool program cannot offer all three!

A budget helps you focus, plan, and set your group’s priorities.   So, believe it or not–having a budget might sound like it is a limiting thing, and some people don’t like budgets. But instead a budget can bring great freedom and relief from a lot of stress.  


If you need help establishing a budget, start with my article  Budgeting basics

And consider ordering my book Money Management for Homeschool Organizations.

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.


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Tax Assessor Clears Confusion on CC Communities Using Churches

There is a lot of confusion about whether Classical Conversations Communities should be using churches for their Community Day activities.

Background: Unlike most homeschool programs and co-ops, Classical Conversations Communities are usually not nonprofit organizations. Instead they are for-profit businesses owned by the Communities’ Directors who have licensing agreements with Classical Conversations, Inc. This may cause problems when a CC Community meets in a church. Many churches avoid hosting businesses on their property for several reasons including:

  1. Jesus chastised the money-changers in the Temple in Mark Chapter 11. Many churches have a policy against business owners conducting their business on church property.
  2. Churches enjoy property tax exemption from their state governments for their religious activities. Hosting a business may threaten that property tax exemption and churches would have to pay property tax. Churches want to avoid violating their property tax exemption and therefore do not typically allow business to be conducted on their property.

I wrote a long FAQ page about homeschool groups using churches here.  

One tax assessor in North Carolina, Jeremy Akins, kindly answered several questions regarding CC use of church property in his county Alamance, NC.

His document “Classical Conversation FAQ” answers several questions including:

  • How authoritative is this document?”
  • My CC Community operates out of a church. Does this put the church at risk of losing its property tax exemption?
  • Classical Conversations is Christian education. It aligns with the values and beliefs of the host church. Shouldn’t we be covered under the religious rather than nonprofit educational exemption?
  • What if my church wants to set up a CC Community operated by the church itself?
  • We only use the fellowship hall and outdoor areas for 6 hours per day, 30 days per year. Isn’t this an incidental use by members of the general public? I’ve heard this doesn’t jeopardize the exemption.
  • What if I want to operate a CC Community with all volunteer staff (no payments to the Director / Tutors, just the cost of the curriculum, license fee and facility fee)?
  • Are you saying that a CC Community cannot be structured as a for-profit business?

You can read Mr. Akins’ response (5 pages) in full here.  Alamance County NC Classical Conversations FAQ.pdf


Although Mr. Akins’ FAQ document is limited to his jurisdiction (Alamance County, NC), he does make his assessment based on state-wide laws. Additionally, his FAQ gives helpful insight into how a property tax assessor thinks and evaluates a for-profit homeschool business using church property to conduct its business.



Nonprofit Status for CC Communities

I would like to expound on one question that Mr. Akins answered:

Does this mean my CC Community must obtain 501(c)(3) status?”

No, although that is something your Community may consider. All that is required for the purpose of the exemption is a North Carolina status as nonprofit.

Let me explain the difference between nonprofit and tax exempt status:

Nonprofit status is granted by your state, usually the Secretary of State’s office. Creating a nonprofit corporation is forming a new legal entity.

501c3 tax exempt status is offered by the IRS to eligible nonprofit organizations.

Think of it like being married: Your state approves marriage licenses and your form a new family entity when you get married. You also are eligible for tax benefits from the IRS (called Married Filing Joint) if you are eligible and want it. Your homeschool group doesn’t have to apply for 501c3 tax exempt status with the IRS. Just like a married couple does not have to file a joint tax return; they can file Married Filing Separately. While that usually costs more in taxes, but it can be done.

The same is true for a nonprofit organization. If a nonprofit does not apply for 501c3 tax exempt status with the IRS, the nonprofit will owe federal income tax on any surplus it has each year. The nonprofit organization will be required to file a federal corporate tax return (Form 1120) to report its income, expenses and profit. The federal corporate tax rate is 21%. So most eligible nonprofits apply for 501 federal tax exempt status and avoid paying 21% of their profit to the IRS.

Please understand that Mr Akins’ FAQ is addressing property tax exemption on churches, not federal income tax exemption, so he is addressing that tax and its tax basis.

Resources for Nonprofit and Tax Exempt Status

I have some resources to explain nonprofit and federal income tax exempt status. I do not make assessments regarding state and county property tax. They are different taxes and different tax agencies. I focus on federal income tax exemption from the IRS.

Difference between nonprofit and tax exempt status (3 minute video)

Do I Have to Be Tax Exempt? (3 minute video)

Is My Homeschool Group Required to Have 501c3 Tax Exempt Status? (13 minute podcast)

Creating a Nonprofit webinar: This webinar recording is helpful for new nonprofits, existing homeschool group, or for a business wanting to convert to a nonprofit organization. The webinar runs about 90 minutes and covers:

  • The difference between a business and a nonprofit organization
  • The advantages and disadvantages of being a nonprofit organization
  • Forming a board: who can be one it, what do they do, etc.


I have helped several CC Communities convert to nonprofit organizations and assisted over 200 organizations apply for 501c3 federal income tax exempt status. If you have questions about the process, start with the resources above. If you have specific questions, we can arrange a phone consultation.


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Stuck inside doing your taxes?

Are you stuck inside because of illness, social distancing, or the corona virus?
Well, it’s a good time to work on your tax return!
(Not what you wanted to hear, I’m sure!)


I hear from lots of CC Directors and tutors about their taxes. It can be confusing running a business, paying tutors, etc.

If you’re confused about takes, I have a book for you!

I am pleased and proud to announce my latest book, Taxes for Homeschool Business Owners!
Read more here.

I have spoken and emailed with so many CC Directors, tutors and teachers at homeschool programs that are confused about their taxes. This is my attempt to keep you out of trouble with the IRS!

This ebook is a great resource for:

  • Tutors or teachers for a homeschool program paid as an Independent Contractor
  • Classical Conversations(R) Directors
  • CC tutors
  • Coaches, musicians, artists, etc. hired to teach at a homeschool co-op


The ebook is 60 pages long and contains information on

  • Business Start Up
  • LLC status
  • Tax Deductions
  • Tax Forms
  • Sample Tax Returns
  • Self Employment Tax
  • Paying Yourself
  • Paying Others
  • Businesses Using Churches
  • Should My Homeschool Program Be a Nonprofit?

I hope you find the ebook and the webinar helpful this tax season!

Homeschool theater program has income from advertising. Do they owe taxes?

Dear Mrs. Topp,

Our homeschool co-op has a yearly theater production that costs $35 per student to participate in the production. The theater teacher collects and uses all funds for the production. We now have local businesses that would like to advertise (by giving a donation) in the theater program. I understand that the business can use the donation as an advertisement write off, but what does the co-op or teacher do with the income, regarding the IRS?
Thank you for your time.

G.W.

Dear G.W.,

Good for your co-op for staging a theatrical production. I was in theater in high school and my daughter was in several homeschool theater productions too! It builds confidence!

The co-op teacher should turn over the funds to the co-op’s treasurer and he/she should deposit the money into a bank account that is established in the co-op’s name. A bank or credit union should open a nonprofit or a “club” account for the co-op.

They will want your EIN (Employer Identification Number) letter from the IRS. They may also want some official document like bylaws. My credit union wanted a letter signed by two officers stating that I, as the treasurer, had authorization to open an account for the nonprofit. Call your bank or credit union to see what they will require to open a nonprofit or club checking account.

You might find this podcast helpful: Tiny Homeschool Groups: Do We Need a Bank Account?

Income from advertising is NOT a donation from the donor. Do not give the donor a donation receipt. He received something or value (advertising) in exchange. He can deduct the cost of the ad in your theater program as advertising expense.

By the way, many nonprofits don’t accept ads, but rather “qualified sponsorships” and simply acknowledge their sponsors with a “thank you” in their programs. These are different from ads. Typically only the company name or logo is presented. No inducements to buy or product information is given in a sponsor thank you. Here’s a helpful explanation http://www.nonprofitlawblog.com/ubit-advertisements-vs-qualified-sponsorship-payments/

Advertising income is called unrelated business income for the nonprofit. Fundraisers and any income not related to your educational purpose is unrelated business income and and you must report it and pay tax on it.

Fortunately, the IRS has several ways to avoid paying the unrelated business income tax (UBIT):

  1.  The first $1,000 in income from an unrelated business will not be taxed.
  2.  If the fundraiser (or unrelated business) is run substantially by volunteers (i.e., no paid staff) then the proceeds are not taxed.
  3. If the fundraiser is not regularly carried on, such as a once-a-year event or bake sale, then the proceeds are not subject to UBIT.
  4.  If you are selling donated items, like in a garage sale, the income raised is not taxed.
  5. Qualified sponsorship payments are not unrelated business income.

Usually exception #1 or #2 will apply to small homeschool nonprofits, so your co-op should be able to receive income from advertising without worrying about paying tax on it.

It’s a good idea to create a line item in your record keeping labeled “Advertising Income” so it’s clearly differentiated from other income.

I hope that helps.

Carol Topp, CPA
HomeschoolCPA.com
Helping homeschool leaders

Taxes for Homeschool Business Owners ebook

I am pleased and proud to announce my latest book, Taxes for Homeschool Business Owners!
Read more here.


I wrote this book because I have spoken and emailed with so many homeschool business owners that are confused about their taxes. This is my attempt to keep you put of trouble with the IRS!

Thank you so much for the tax resources you put out there, it’s been super helpful for me as a director of our CC Homeschool campus! -Jessica


The ebook is 60 pages long and contains information on

  • Business Start Up
  • LLC status
  • Tax Deductions
  • Tax Forms
  • Sample Tax Returns
  • Self Employment Tax
  • Paying Yourself
  • Paying Others
  • Businesses Using Churches
  • Should My Homeschool Program Be a Nonprofit?

This ebook is a great resource for:

  • Tutors or teachers for a homeschool program paid as an Independent Contractor
  • Classical Conversations(R) Directors
  • CC tutors
  • Coaches, musicians, artists, etc. hired to teach at a homeschool co-op

As we do our taxes this year I am thankful for your knowledge and being willing to share it. I GUARANTEE many women WEREN’T doing their taxes correctly. -Julie


Please do not share the ebook file with other people or post the ebook file on the internet. If you know someone who would be helped by the book, please send them to this page and they can purchase their own copy.
Share this link: HomeschoolCPA.com/TAXESHSBIZ


I hope you find the ebook helpful this tax season!

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders