Does bank account need to be less than $5,000 to be self declared tax exempt?

We are a small group (43 families) starting a non-profit. We have used several of your free and purchased resources. Thank you for your work in this space.

Question…does the opening balance of the bank account need to be less than $5,000 to remain self declared?

We will be receiving about $5,000 from a now defunct homeschool group to help us start off.

Our annual income won’t exceeded $5,000, so we plan to self-declare our 501c3 tax exempt status. Will the account balance of over $5,000 be considered income of over $5,000?

Thank you in advance for any information you may provide.

 

 

Thank you for contacting me.  I’m glad my resources have been helpful.

You asked, “..does the opening balance of the bank account need to be less than $5,000 to remain self declared?
No. The IRS only looks at the annual gross revenues, not bank balances.

If the original groups wants to gift the new organization $5,000, that would be income (a donation) in the year it is received.  So that large donation could mean the new group has over $5,000 in gross revenues in that year.

But the IRS guidance* for self declaring 501c3 tax exempt status says:
normally not more than $5,000.”

A one time large gift would not be “normal,” so the organization could still self-declare 501c3 tax exempt status if your normal gross revenues are under $5,000/year. 🙂

I hope that helps!

* Source: Instructions for Form 1023 page 1 “Form 1023 not necessary.”

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Top 10 Tips for Homeschool Leaders: Paying Workers

 

Lots of homeschool groups hire and pay teachers to conduct classes. Sometimes these teachers are homeschool parents, but sometimes they are professional instructors. Homeschool leaders have a lot of questions about paying teachers and other workers.

 

 

Topics in this episode include:

• Independent Contractor or employee
• The factors the IRS considers in classifying workers
• What if parents pay teachers directly?
• How paying teachers affects your church host
• Can Independent Contractors receive tuition discounts

This is the fourth part of a 5-part series on Top 10 Tips for Homeschool Leaders, a workshop given to homeschool leaders in Wichita, Kansas.

Each episode can be found at HomeschoolCPA.com/Podcast. In the 5-part podcast series Carol will cover:
Episode # 180 Board duties
Episode # 181 Bylaws
Episode # 182 Preventing fraud
Episode # 183 Paying Workers
Episode # 184 Insurance and Record keeping

 

Featured Resource:

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.

 

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What does it cost to get tax exempt status?

How much does it cost to be a 501c3? My homeschool group is new and we don’t have a lot of money.
-Homeschool leader

 

Dear homeschool leader,

It’s not as expensive to apply for 501c3 tax exempt status as it used to be, especially if your organization is small (revenues less than $50,000/year) and is eligible to file the shorter IRS Form 1023-EZ.

Here’s an explanation of the cost to get 501c3 status from my webinar on 501c3 Application for Homeschool Nonprofits

This webinar (90 minutes total length) will explain the benefits of tax exempt status, the application process and walk you through the application Form 1023-EZ line-by-line. At the end of the webinar you’ll be equipped to apply for tax exempt status by yourself. The cost of the webinar is $25.

 

Get more information on the webinar 501c3 Application for Homeschool Nonprofits

 

Carol Topp, CPA

HomeschoolCPA.com

Top 10 Tips for Homeschool Leaders: Preventing Fraud

 

Let’s hope fraud or embezzlement never happens in your homeschool group! Do you have safeguards to spot it and prevent it?

In the podcast Carol mentions her list of “Best Practices to Prevent Fraud.” Find it here.

 

This is the third part of a 5-part series on Top 10 Tips for Running a Homeschool Group, a workshop given to homeschool leaders in Wichita, Kansas. You will probably find many of the audience questions would be a question you might ask as well!

Each episode can be found at HomeschoolCPA.com/Podcast. In the 5 part podcast series Carol will cover:

Episode # 180 Board duties

Episode # 181 Bylaws

Episode # 182 Preventing fraud

Episode # 183 Paying Workers

Episode # 184 Insurance and Record keeping

 

You might find Carol’s podcast series for Tiny Homeschool groups helpful

Tiny Homeschool Groups: Are We a Nonprofit?

 

Featured Resource

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.

Click here for more information

 

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Can my individual homeschool have a fund raiser?

Can we (an individual homeschool) be allowed to do fund raising similar to youth sports groups, scouts,etc?

What a good question. In general I say, Yes, you can participate in a fund raiser if the fund raising organization allows it. BUT, the profit you make is taxable income and you’ll need to report it on your tax return.

Another homeschooling mom e-mailed me with a similar question:

With 6 children needing school curriculum, we are coming up short in finances. We contacted a calendar company that said it would be permissible for us to sell calendars as a fund raiser for our homeschool. We accepted personal checks made out to our homeschool name (that we registered with the state school board, considered a non-profit private school). We do not have a checking account with our homeschool name on it. Therefore, we have no way to deposit them.

What is your advice to us? The checks amounted to $90. Is this method acceptable to continue as long as we pay taxes on it? Mrs. W.

By selling calendars Mrs W. was operating a small for-profit business. She is free to use the profit of the small business for anything she wishes, including homeschool books and supplies. Since Mrs W. didn’t mention what state she was in, I cannot determine if her state requires business registration. Many states do not require any type of registration for a sole proprietorship using your own name. You may have to file a name registration with your Secretary of State to establish a business name.

To deposit these checks Mrs W. needs to open a checking account in the homeschool’s name. You’ll have to get an EIN number from the IRS at www.irs.gov. You can then spend the money in the checking account on homeschool supplies and close it or keep a small amount in it until next year.

Mrs W. should report the $90 as income on her tax return as either Other Income on line 21 of the 1040 or on Schedule C Business Income if she had expenses from the sale of the calendars (postage, mileage, etc…)

Quite a lot of work for a $90 fund raiser, huh?

Before you try a fund raiser for you individual family homeschool make sure its worth the effort of getting a business name, EIN, and checking account.

Is it worth the time and effort for the money you will raise?
Maybe try having a garage sale or sell something to bring in income instead!

My book Money Management in a Homeschool Organization covers fundraising and offers some ideas for easy fundraisers.

 

Carol Topp, CPA
HomeschoolCPA.com

Tiny Homeschool Groups: Do We Need a Bank Account?

Tiny Homeschool Groups: Do We Need a Bank Account?

Tiny homeschool groups have different challenges than large programs. They are limited on resources, volunteers, and activities. But they still have questions about legal status, money and taxes that the large homeschool organizations have.

In this 4-part podcast series, Carol Topp, CPA answers the common questions that tiny homeschool groups face. All podcasts are available at HomeschoolCPA.com/Podcast

  • Episode #175 Are We a Nonprofit?
  • Episode #176 Do We Need to File Anything?
  • Episode #177 Do We Need to Pay Taxes?
  • Episode #178 Do We Need a Bank Account?

In this episode Carol Topp will explain when a tiny homeschool group might need to open a checking account.

  • The pros and cons of operating in cash and without a checking account
  • Warning against using a personal checking account
  • Steps to take before opening a checking account

Join the Facebook group for homeschool leaders: I am a Homeschool Group Leader. 600+ homeschool leaders offer ideas, encouragement and respectful exchange of ideas. https://www.facebook.com/groups/72534255742/

 

Featured Product

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.

Click here for more information

 

Board, bylaws and budget for homeschool groups

A homeschool leader is asking some excellent questions about writing bylaws, establishing a board and collecting money.

Dear Carol,
I am co-directing an established homeschool group and we are in the process of writing by-laws. My question is:

  • Is it okay to not allow members to have a vote pertaining to the decisions of the homeschool board?
  • Can the by-laws be set up to allow suggestions and recommendations from the members at the approval of the board?
  • Also, is it legal to initially appoint a board without a vote and then fill vacancies at the discretion of the established board?

Our concern is to protect the vision of the homeschool group.

Your website has been a tremendous help to us. Thank-you for your time and ministry to homeschoolers.

Misty M

 

Misty,
You have asked several good questions. Your group is fortunate to have you as a co-director.

Yes, it is OK to not allow members to vote; I have been on several nonprofit boards that do not have members vote.

Yes, you can set up your bylaws to allow final approval of ideas to be a board responsibility. You may establish a practice of considering suggestions and recommendations; you may not need to formalize the practice in the bylaws.

Yes, you can appoint a board without a member vote. This is done quite frequently on nonprofit boards, especially fine arts boards (i.e., art museums, symphonies, ballets, etc). Many boards find new board members from interested members, volunteers or patrons.

As a guideline, your board should remember their fiduciary duty (duty of care and duty of loyalty) to manage the funds with the purpose/mission of the organization in mind and not for private gain or benefit.
The board’s job is

  • to provide for fiscal accountability,
  • approve the budget, and
  • formulate policies”

From “Major Duties of Board of Directors

In other words, think first of what is best for the organization.

You might find my Homeschool Organization Board Manual to be helpful.

It is a template to create a board member binder. It has lists of important documents to keep in your binder and tools to help you run your meetings smoothly including a sample agenda that you can use over and over again.

But this is more than just a few cover sheets for your binder. It is also a 55-page board training manual with helpful articles.

I hope that helps!

Carol Topp, CPA

How to wrap up your year as treasurer

It’s near the end of the year for many homeschool nonprofit organizations.

Here’s a list of tasks for a treasurer to do to finish the year:

  • Enter all transactions and check to ensure that your bank reconciliations are up-to-date for the entire year.
  • Fill out the IRS 990/990EZ or 990N if required. As the Treasurer, you are the most appropriate person to fill out this annual IRS form.
  • Give a year end summary to your board. My free webinar Financial Reports for Homeschool Nonprofits will show you good, bad and ugly financial reports.
  • Make a list of any items that you or the next treasurer needs to address that might be out of the norm like outstanding checks.
  • Change authorized banking signatures, if needed. Change names on state registrations and the IRS EIN too. How to change responsible party name on EIN.
  • Put together a list of important deadlines like insurance renewal, Form 990 dues date, state registration deadlines, etc. If you are the next year’s treasurer, put these dates on your calendar.
  • Review the next year’s budget with the incoming treasurer. Don’t have a budget? This should help How do I create a budget for my homeschool group?
  • Train the incoming treasurer. My Board Manual  can serve as a board training guide.

My book Money Management in a Homeschool Organization is a guide for treasurers of homeschool organizations. If you don’t have a copy, buy one today. Maybe you’ll say like Mara, a homeschool treasurer in Washington did, “I was also pleased to learn that we are doing many things right!”

 

Carol Topp, CPA

Reimbursement policy for a homeschool group

We discussed during our phone call the need to require receipts from our homeschool program’s teachers before they are reimbursed. I have some board members that are concerned. They are afraid it will be seen as more trouble than it’s worth and that we will have fewer moms volunteer. Their question is whether receipts are necessary.

-BW

 

BW,

Reimbursements…yes, the paperwork and receipts are necessary, because if your homeschool organization gives a volunteer a check without getting a receipt from her, it is considered taxable income to the volunteer teacher (under what the IRS calls a “nonaccountable plan”).

But if the volunteer teacher gives you a receipt, then the money your homeschool group pays her is NOT taxable income to her.

Here’s a blog post you should share with your board: No receipts for expenses can get you in trouble!

Your homeschool program should have a reimbursement policy that is an “accountable plan” to avoid your volunteers having to report the reimbursement as income on their tax return.

To be an accountable plan by the IRS, your reimbursement plan must include all three of the following rules:

  1. The expenses must have a business connection; that is, the expenses must have been paid or incurred while performing services as an employee (or volunteer) to your organization.
  2. The volunteer or employee must adequately account for these expenses within a reasonable time (typically within 120 days). Your homeschool organization must require volunteers/employees to give you detailed information on these expenses, including date, time, place, amount, and  purpose for the expense.  Lots of homeschool groups create a reimbursement form. I offer a sample here (it’s an Excel spreadsheet so you can edit it if you like).
  3. You must require the volunteer or employee to return excess reimbursements within a reasonable and specific period of time (usually 60 days). This is applicable if you give money in advance to a volunteer. Giving and advance is not typical in homeschool groups, but a few groups have told me that they give advances to some volunteer teachers.

If all three of these requirements are not met, the plan is determined by the IRS not to be an accountable plan, and any expenses reimbursed to the employee by your homeschool program are taxable to the volunteer!

So now you can see the importance of requesting those receipts (and having an accountable plan)!

Better yet, use my sample reimbursement form (opens an Excel spreadsheet) since it collects all the information required by the IRS to have an accountable plan.

I strongly recommend that your reimbursement policy state that if no receipts are turned in, no reimbursement money will be paid to a volunteer!

 

My book Money Management in a Homeschool Organization offers tips on reimbursement plan and other aspects of managing the money in a homeschool group.

Carol Topp, CPA

HomeschoolCPA.com

 

Income and expenses are a “wash.” Do I have to record them?

I’m treasurer for a nonprofit homeschool group. Every year some of the teachers charge a lab fee and it all gets spent on lab equipment. Do we have to claim that as income or is it just a wash because it’s used for materials or experiments?

Homeschool Treasurer

 

 

Dear Homeschool Treasurer,

You should claim/record the lab fees collected in full as income to your group.

Then also record the lab or equipment expenses to clearly reflect both the income and the expense.

If you don’t record the income, because it is a “wash” (meaning the same as the expenses, so no effect on your profit or surplus), then you are guilty of both under-reporting income and under-reporting expenses.

Your board will not have an accurate picture of all the income and all the expenses.

And you’ll be lying to the IRS! This is obviously more serious if your homeschool group is a for-profit business.

I warn against mixing income and expenses in your bookkeeping in my book Money Management in a Homeschool Organization.

Please take a few minutes and record all your income and all your expenses.

Carol Topp, CPA

HomeschoolCPA.com

Helping Homeschool Leaders