Homeschool business owner under reporting her income

I’m a leader of a small, for-profit classical homeschool program. I have only been recording the amount that I retain after I pay my tutors on my tax return. After reading your website and FB comments, I’m confused. Why do I have to claim all of the money even though I don’t keep it?

-S

 

Dear S,

You, as a business owner, must report all your income om your tax return. Additionally, you can deduct business related expenses, like paying your tutors, insurance, rent, etc.

You asked, “Why do I have to claim all of the money even though I don’t keep it?
Good question!

Short answer: It’s the law. The IRS requires business owners to report ALL their income. Then the business owner shows the IRS all their business-related expenses. The difference is profit and that’s what business owners pay taxes on (and get to keep).

Longer answer: By showing your total income from your business and all your business-related expenses, you prove to the IRS that your business had little or no profit. The IRS won’t take your word for it that your didn’t “keep it.” They want proof of how much profit you had and you give the proof by filling out the numbers on the tax form (Form 1040 Schedule C for businesses).

On your tax form (Schedule C) you should have answered this question: Did you make payments that require you to file Form 1099? with a YES, because you paid your tutors as 1099 Independent Contractors and gave them each a 1099-MISC (I assume).

Then further down on the Schedule C you can deduct what you paid those tutors on Line 11 Contract Labor (or Line 26 Wages if they are employees). Then you can also show any other expenses like insurance, office supplies, etc.


It is not my intention to scare you or anyone else away from operating a homeschool business. You provide an essential service to homeschool families, so don’t stop, but you do need to understand the legal and tax implications, so I am offering this webinar to help:

On Monday January 21, 2019 at 8 pm I will be giving a live webinar on Tax Preparation for Homeschool Business Owners.  The webinar is free for the live version. For details visit HomeschoolCPA.com/HSBIZTAXES


If you did not prepare your tax return this correct way, you may need to amend your prior years’ tax returns, especially if you failed to report all of your income. You can amend up to 3 prior years. The IRS can fine taxpayers for under-reporting income. They take that very seriously!

But if you correct prior year tax returns now, the IRS usually waives any fines and penalties.
You may not owe any additional tax, so don’t panic!. I cannot tell if you will owe more tax (or get money back!) until I would see your tax return and recalculate your Schedule C.

Did you prepare the tax return yourself or use a professional tax preparer? If you used a professional tax preparer, go back to him/her with all your records for the past 3 years and see what they recommend that you do.

 

I hope that helps!

Carol Topp, CPA
HomeschoolCPA.com

Webinar: Tax Preparation for Homeschool Business Owners


Taxes! Oh my! Tax returns will be a doozy with massive tax law changes and the redesigned Form 1040.

But tax preparation for homeschool business owners is even more complex than regular taxpayers.

Fortunately, HomeschoolCPA is here to help. I recorded a webinar.

 Tax Prep for Homeschool Business Owners (webinar recording)

$10.00 includes unlimited viewing and a handout of slides

Here’s what the webinar covers:

  • Highlights of tax changes for 2018
  • IRS tax forms for a sole proprietorship: Schedule C and SE
  • Self-employment tax
  • How to pay yourself
  • Tax deductions common to homeschool business owners
  • New tax deduction for 2018! Look out for this one. It’s terrific!
  • The new redesigned IRS Form 1040
  • Two sample tax returns. Yes, I walk you through two sample tax returns, so you can see how everything looks. 🙂
  • Common mistakes to avoid

Carol, thank you again for the webinar. It was one of the BEST webinars I’ve EVER attended. If you do hold another one, I would pay for it hands down.  Totally worth the $10! -Denise, webinar attendee

Carol, thank you for doing this for us! I am not a numbers person at all, and still found this webinar very interesting and helpful.”-Anne, webinar attendee

“I actually don’t care for webinars at all – it is not my learning style at all and I struggle to focus, but this one was extremely value and had my attention”. -Mary, webinar attendee


This webinar is for:

  • Paid teachers at a homeschool co-op
  • Tutors getting paid as Independent Contractors
  • Directors/owners of homeschool programs such as CC directors running a community
  • Music teachers, tutors, coaches, etc. running their own businesses
  • Business owners selling services to the homeschool marketplace

The webinar recording costs only $10. You will gain a lot more than $10 worth of information, I promise.

For $10 so you get:

  • Access to the webinar video to re-watch as often as needed (just save the link!)
  • Download of the webinar slides
  • Notification of upcoming webinars for homeschool business owners and nonprofit leaders

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

California homeschool leaders: A webinar just for you!

For California homeschool leaders: I have something special for you!
A free webinar
on

Money Tips and Traps for Homeschool Organizations

Monday December 3, 2018 at 6:30 pm California time

and
Carol Topp, CPA, the HomeschoolCPA

 

The webinar is for all homeschool leaders of co-ops, support groups, CC Communities, sports, music, clubs, etc! Whether your group is large or small, new or mature, you can learn something new or improve on what you are currently doing!
The webinar will cover:
  • Tips for managing the money in your homeschool group
  • Board duties (what leaders should be doing!) concerning money
  • What financial reports California requires
  • What reports you should be filing with the IRS
  • Money traps to avoid
  • Taxes and tax exempt status
  • Paying workers
  • Avoiding errors and embezzlement

There will also be time for your questions and answers!

The webinar will be held  Monday December 3, 2018 at 6:30 pm California time
You can join my phone, PC, Mac, iphone, iPad, etc. from wherever you are!

 

The webinar is free, but you must register to be emailed the link.

 

In addition the webinar will be recorded, so be sure to register so you get the recording link emailed to you!
If you can’t attend the live webinar, still register, so you will be sent the link to view the webinar later.

 

I hope you can join me on Monday December 3, 2018  at 6:30 pm PT
Thanks to CHEA for hosing and helping put on his webinar for homeschool leaders!

 

Register today even if you can’t join us live so you will get the link to the recording.

 

Carol Topp, CPA
HomeschoolCPA.com

How should a homeschool co-op set up their Quickbooks account?

Do you have something on your website or a resource on how a co-op should set up their QuickBooks accounts?

Michelle

 

Michelle,

I have a few posts about how to set up QuickBooks for a homeschool co-op:

Quickbooks Tips for Homeschool Groups on Sales
What financial reports do we need to generate monthly?

If you receive money in one year, but it’s really for next year (like early registration) then this is helpful:
Deferred Revenues in QuickBooks (opens a pdf file)

 

I actually don’t spend a lot of time talking about QuickBooks on this blog because there are so many good resources our there like this one (check out her QuickBooks tutorials):

5MinuteBookkeeping

A nonprofit called TechSoup has some great videos for using QuickBooks in a nonprofit:

https://www.youtube.com/playlist?list=PLRCtupIatuLkSlhtlXDyo7P7woeHORwgn

Finally, my book Money Management in a Homeschool Organization  has some tips for using QuickBooks like setting up a Chart of Accounts and a who are your “Customers” and what are your “Sales.”
I hope that helps,
Carol Topp, CPA

Are you Confused by your Homeschool Group’s Financial Reports? Webinar for you!

Are you confused by the financial reports from your homeschool group?

You’re not alone!

In this short podcast episode (8 minutes)  Carol Topp, the HomeschoolCPA, will tell you about a webinar she is hosting on Monday October 29, 2018 at 8 pm ET.

Financial Reports for Homeschool Groups: The Good, the Bad and the Ugly

In the podcast Carol mentioned how to register for the webinar.

There is no charge for the webinar but a payment is gladly accepted to offset the cost of hosting the webinar.
https://Paypal.Me/CarolTopp/5 to pay $5.00
https://Paypal.Me/CarolTopp/10 to pay $10.00

The webinar will be recorded, so please Register so that you will be emailed the link to the video.

Like handouts? Here’s a helpful handout: Financial Reports Webinar Handout (pdf)

 

Do financial reports confuse you?

Has this happened to you?

You are at your homeschool leaders meeting. The treasurer hands out a paper showing the group’s financial status. It’s confusing, hard to read, and has weird dollar signs and labels.

You’re too embarrassed to show your ignorance about the report, so you don’t ask any questions.

Neither does anyone else.

You’re wondering, “Am I the only one who finds this confusing? No one else asked any questions, so they must get it. I’ll just keep quiet and hope for the best.”

Good news! The problem isn’t you!

It’s probably the way the treasurer is displaying the financial report.

 

I’ve seen all kinds of financial reports from homeschool groups. Many are very confusing and difficult to understand (and I’m an accountant!).

This prompted me to offer a webinar for homeschool group leaders on how to present financial reports that are clear and easy to understand to board members.

During this webinar you will learn:

  • What are the two most important reports for your board to see regularly
  • What mistakes treasurers make
  • How to read a financial report
  • Know what red flags to look for
  • Know if your organization is healthy or doing poorly
  • How to a better manager and leader
  • Use the financial report to make decisions and set goals.

You will be shown the good, the bad and the ugly of financial reports.

Join me on Monday October 29 at 8 pm ET, 7 pm CT, 6 pm MT and 5 pm PT for a one-hour webinar

Financial Reports for Homeschool Groups: The Good, the Bad and the Ugly

 

(There is no charge, but a payment is gladly accepted to offset the cost of hosting the webinar).
https://Paypal.Me/CarolTopp/5 to pay $5.00
https://Paypal.Me/CarolTopp/10 to pay $10.00

The webinar will be recorded, so please Register  so that you will be emailed the link to the video.

The advantages of attending live:

  • Time for your questions and answers from Carol (Carol charges $75/hour for a private phone consultation)
  • Interact in the chat room with other homeschool leaders
  • It will get done! I know you have good intentions to watch the video later, but sometimes it just doesn’t happen.

Register now and join us on Monday October 29, 2018 at 8 pm ET, 7 pm CT, 6 pm MT and 5 pm PT

Like handouts? Here’s a helpful handout: Financial Reports Webinar Handout (pdf)

Carol Topp, CPA

HomeschoolCPA.com

Should your homeschool group be collecting sales tax?

Sales tax. Ugh!! As if dealing with the IRS and income tax isn’t enough of a headache, your homeschool organization might need to be collecting and paying sales tax as well!

From the Church Law and Tax blog comes some helpful information about sales tax that applies to homeschool organizations.

Sales taxes are collected in 44 states. Each state has a different sales tax statute and exempts certain types of purchasers from the payment of sales tax.

Some states exempt any organization with 501(c)(3) status from paying sales tax on purchases. Other states offer limited sales tax exemptions.

Collecting Sales Tax

But I’m not talking about paying sales tax when you buy stuff like paper towels or microscopes.

I’m talking about when your homeschool group sells stuff (aka tangible personal property).

What kind of stuff? How about:

  • Text books (some states exempt textbooks form sales tax.)
  • Tickets to drama performances (yes, some states add sales tax to ticket sales!!)
  • Food sales (in some states food sales, especially snack foods and soft drinks are sales-taxable)
  • T shirts, even if they are a fundraiser!

The rules for when an organization is exempt from collecting sales tax are different form the rules about paying sales tax.

Most states do not exempt churches from collecting sales tax on taxable transactions. As a result, a church that conducts taxable transactions is required to have a sales tax permit.

Most states have a nuisance exception to the requirement of having a sales tax permit, which allows churches to have taxable sales a couple of days a year without the requirement of collecting sales tax. Since every state is different, you should check with your state revenue department. (Source: https://www.churchlawandtax.com/web/2008/september/exceptions-to-exemption.html)

 

For example: In Ohio a homeschool co-op with 501(c)(3) tax exempt status can buy things (like books, supplies, etc) without paying sales tax.

But Ohio only allows nonprofits 5 days a year to hold sales without collecting sales tax. It’s kind of like they are saying, “use those 5 days wisely…you only get 5 sales-tax free days to sell stuff each year!” So maybe the co-op wants to have a big fundraising event and sell items. That’s one of the 5 days they can sell items and not have to collect sales tax.

 

Sales Tax on Fundraiser Sales

You may be thinking your homeschool group can avoid collecting sales tax because you only sell things as part of a fundraiser. Sorry, bed news…

Virtually any form of fundraiser that involves the sale of a product will also require the collection of sales tax. (Source: https://www.churchlawandtax.com/web/2008/september/exceptions-to-exemption.html)

Sales Tax Laws vary by State

Each state has different rules about how and what they apply sales tax to and what organizations can be exempt from collecting sales tax.

It will take some detective work to figure out what your state’s rules are! It’s one of the headaches of living in a country with 50 states (and Washington DC!).

How to Get Help

  • Start with your state’s department of revenue website. Look for words like “sales tax” and then “exemptions” Then look for words like “nonprofit” and “exemption.” Happy reading. The states don’t make it easy to find the exceptions to taxes!
  • Google “Sales tax exemption nonprofit YOUR STATE” and start hunting.
  • I find TaxJar.com and Avalara.com are two helpful websites with information on sales tax.
  • Contact me, Carol Topp, CPA. I’ve done the detective work for several states (about 30) and can sometimes help you or at least point you in the right direction. I charge a fee for this research of $50.

Carol Topp, CPA

HomeschoolCPA.com

Webinar: Financial Reports for Homeschool Groups

 

I’ve seen all kinds of financial reports from homeschool groups. Many are very confusing and difficult to understand (and I’m an accountant!).

So I am offering a webinar for homeschool group leaders on how to present financial reports that are clear and easy to understand to board members.

During this webinar you will learn:

  • How to read a financial report
  • Know what red flags to look for
  • What are the two most important reports for your board to see regularly
  • What mistakes treasurers make
  • Use the financial report to make decisions and set goals.

You will be shown the good, the bad and the ugly of financial reports.

Financial Reports for Homeschool Groups: The Good, the Bad and the Ugly

 

The webinar was recorded and you can watch it on YouTube

 

Like handouts? Here’s a helpful handout: Financial Reports Webinar Handout (pdf)

Carol Topp, CPA

HomeschoolCPA.com

QuickBooks tip for homeschool groups: Sales

 

Here’s a  tip for all you homeschool groups using QuickBooks (or something similar like Apolos or Wave)

In the homeschooling world don’t usually think of our members as “customers” but that’s what QuickBooks calls them.

Members = Customers

We also don’t think of collecting registration dues or field trip fees as “sales” but that’s what QuickBooks calls it when you collect money and provide a service.

Registration Fees = Sales Income

Field Trip fees = Sales Income

Co-op Class fees = Sales Income

You should set up several categories on your Chart of Accounts for different types of Income. You may want to change the titles of Income accounts in QuickBooks to match your program. So instead of “Sales” Use “Program Income” or just plain “Income”

Make use of subaccounts under Income for things like

  • Membership dues
  • Co-op Tuition
  • Field Trips Income
My book Money Management in a Homeschool Organization  has some tips for using Quickbooks like setting up a Chart of Accounts and a who are your “Customers” and what are your “Sales.”

Carol Topp, CPA

HomeschooCPA.com

 

 

Holding a fundraiser to pay for homeschool curriculum

Photo credit TheMagicOnions.com

 

I homeschool my 3 children and 3 children of another family. As a project, we learned how to create a school website and as a idea to raise money for curriculum, supplies and hopefully a field trip or two. We’re in NC and also considered a private school.

We thought of an idea to sell Fairy Gardens that we personally make and accept donations on our website. Am I breaking any laws by not being registered as a business or non profit? 100% of profits will be spent on the school, but it goes to my own PayPal account and I state on the website that receipts for the donation being spent on the school and states that the donations are not tax deductible.

It dawned on me that it might not be allowed to do this without some kind of permit. I’m not sure though because I would be allowed to make fairy gardens and sell at a yard sale, so is it different if I sold them online?

Also, can I be a non-profit since I homeschool the children of two families and not just my own? I would greatly appreciate your feedback on this and thank you so much for all of the knowledgeable information you’ve shared on your site!

Best wishes,

April in North Carolina

 

 

April,
You and the other family are not a nonprofit organization, even if North Carolina classifies your homeschool as a private school. Private school  only means you are not funded with public (i.e. government) funds. It does not make you or your business a nonprofit organization. (BTW, some private schools are for-profit businesses.)

In order to be a tax exempt nonprofit, the IRS says you must be operated and organized as a nonprofit.

A tax exempt nonprofit organization “must not be organized or operated for the benefit of private interests” (Source: https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-section-501c3-organizations).

So benefiting only you and the other family is “private interests” and not serving a public good, therefore you cannot be a nonprofit organization with only two families getting all the benefits.

Your fairy garden business is NOT a nonprofit. It is a business, probably a micro business. Stop calling your sales “donations.” They are simply sales of products (fairy gardens in your case) by a business.

You probably need to register in North Carolina as a business and probably get a vendors license to collect and pay sales tax.
Better start googling “Start a small business in North Carolina.”

 

My books Micro Business for Teens could help your children start this as their business (not yours) and learn a lot too!

 

 

 

 

 

 

Additionally, your comment about selling your products at a yard sale is not quite correct. You can sell fairy gardens at a yard sale, but then you’re running a business and the profit is taxable. In yard sales, you are generally selling household items you bought over many years and used personally and selling them for less than you paid for them. But that’s not true for your fairy gardens. You did not use them personally and you are selling them at a profit, so it’s a business and you should register it and apply for a vendor’s license.

 

Carol Topp, CPA