Video: Homeschool and Taxes

The Homeschool Channel TV has a short video explaining tax breaks for homeschoolers.

You may need to register as a member of Homeschool Channel. It’s free and an excellent resource of videos for your family.

View Homeschool Channel TV: Homeschool and Taxes here

HomeschoolChannel_Taxes

Jeremy and Steve discuss 501c3 charitable status.

I have an article on my blog that answers the question:

Can my family homeschool be a nonprofit charity?

Carol Topp, CPA

Can’t we operate without IRS tax exempt status?

irs_sign

Carol,

Does my homeschool support group really need to apply to 501(c)(3) tax exempt status with the IRS? It seems like a lot of time and money. We have a small budget and we don’t accept tax deductible donations.

Can’t we just operate as we are?

You described your group as a support group, meaning you exists for the benefit of the members and you do not accept or plan to seek tax deductible donations.

Many larger homeschool organizations, especially co-ops that have an educational function and not just a support group purpose, seek 501(c)(3) tax exempt status for its many benefits:

  • tax exemption
  • ability to accept tax deductible donations
  • ability to participate in fund raisers only open to 501(c)(3) charities

See my article Do we need 501c3 status?

But homeschool support groups are different. They don’t hold classes; they focus on fellowship. Support groups don’t accept donations; they get all their income from membership dues and maybe a little bit of fund raising.

I attended an IRS webinar and asked your question. Here’s what the IRS said:

It is true the Tax Reform Act of 1969 requirement to “give notice,” (to apply for recognition of tax-exempt status) applies only to organizations wanting section 501(c)(3) status.
So, although other types of organizations are not required to file Form 1024, they may still wish to do so in order to receive a determination letter of IRS recognition of their status. Having the determination letter ensures public recognition of their status and may enable exemption from some state taxes.
Also, even though an organization may “self-proclaim” its tax-exempt status, it is still subject to the rules governing its particular sub-section. It is also subject to IRS examination to determine whether it meets the requirements for the exemption it is claiming.

Translation:

If your organization wished to obtain 501(c)(3) tax exempt status, then you must file an application for that. I can help . See my Services page

If  instead, your group fits the criteria of a social club (what the IRS calls a 501(c)(7)), then your organization can “self-proclaim” that you are tax exempt without filing the paperwork.

But you still have to obey the rules and fit the IRS definition of a social club. 

What it takes to be classified as a 501(c)(7) Social Club

And you don’t have a nice letter from the IRS to prove that you are tax exempt.

So there you have it…most homeschool support groups, if they operate as a social club, can be considered tax exempt without going through the time and expense of tax exempt application with the IRS.

P.S. But even if your group does not have to file the application paperwork (Form 1023 or 1024), your organization must still file an annual information return called a Form 990/ 990EZ or the simple on-line Form 990N with the IRS. Read more here: IRS Form 990N FAQ

Carol Topp, CPA

What business structure and tax forms are needed for a new homeschool co-op?

Hi,
I am a 15 year homeschooling veteran who started a co-op last fall.  I am now being asked by my church for ‘official’ documents to include:  business status, liability insurance, tax information.  I have a checking account for our co-op.
We offer 30 classes, one day a week, for 5 hours.  Six of the 30 classes are paid classes.  The student gives the co-op ~$2.00 each class.  I write a check to the teacher for $20.00 each time they teach.  The teacher always makes $20.00.  The student pays a varying rate dependant upon how many students are in the class.What business status do I need?

What tax forms am I required to file?
What type of liability insurance do I need if the parents are always on site and never drop off students?
Thank you greatly for the information.
Sincerely,
Lauren T
Lauren,
Good for you for starting a homeschool co-op. I’m sure it is a blessing for many families.Your business status could be a for-profit or a nonprofit. It depends on whether you own and run the co-op  as your businessor whether you have a board to make decisions. It also depends on how you opened up the checking account (although that can be changed). Did you use your personal name and SSN? Then you would be a for profit sole proprietorship.

Or did you organize without a profit motive and assemble a board to lead the group? Then you are a nonprofit.

These articles might be helpful:
Getting an EIN from the IRS
Checklist for new  homeschool organizations.pdf
Choosing a leadership teamThe tax forms depend on your business structure. Sole proprietors report business income on Schedule C of their 1040.

Most nonprofits apply for 501c3 tax exempt status to avoid paying taxes on their surplus.

There can still be a need for insurance, even if parents stay on site. Accidents can happen, damage to property can happen. You might benefit from reading my article on  Insurance for homeschool groups.

Since you are paying teachers, you should read my ebook Paying Workers in a Homeschool Organization. You need to determine their worker status as either employees or independent contractors and be giving them a W-2 or Form 1099MISC showing their wages.
You can learn a lot by listening to a podcast I recorded on Paying Workers.
HS Co-ops Cover_400My book Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out covers a lot of your questions. It is available in print or electronic format. Read more here.I hope that helps!

Carol Topp, CPA

Should your homeschool group be a 501c7 social club?

Your website has been very helpful, but I would like to ask you some questions.  Now that we have the EIN are we required to file for any type of status? Are we going to have to fill out any IRS forms yearly or be responsible for any tax payments?
Also, when I applied for the EIN I listed us as a social organization because I thought that described our group better than the other choices since we only meet so that our families can socialize and enjoy activities together; was that an accurate description or do homeschool groups classify as something else? Any insight you have on our situation would be much appreciated.
Sincerely,
Catherine R in  Alabama
Catherine,
I’m glad my website was helpful.  It sounds as if your getting your group onto the right track.Here’s a blog post that you might find helpful: Will getting an EIN put us on the IRS’s radar?Many homeschool groups classify themselves as nonprofit educational organizations because they are co-ops or offer educational activities like classes and field trips. A support group could be considered a social club as you chose.

I have helped homeschool organizations apply for tax exempt status with the IRS several times. Homeschool groups typically apply for 501c3 status as an educational organization, but a few apply for 501c7 status as a social club.

IRS and Your Homeschool Org cover

I  discuss the difference between a 501c3 educational organization and a 501c7 social club in this article:

Homeschool Groups As Social Clubs

A more in depth explanation of 501c3 and 501c7 status can be found in my book The IRS and Your Homeschool Organization.

Carol Topp, CPA

Can a small group be an IRS qualified charity?

In the past week, I have received two emails from homeschool leaders in MD and CA with  a surprisingly similar situations.

In both groups, a small number of homeschooling families were  joining together to hire a single teacher to teach their children once or twice a week. Both groups were very small, only seven families total, but they were paying each instructor quite a bit of money-$11,000 annually in one case and $17,000 in the other. This meant that they exceeded the IRS threshold of $5,000 annual gross revenue and needed to consider filing for 501c3 tax exempt status.

They had several concerns such as a contract with the teacher, how should the teacher be paid and could the group qualify for 501c3 tax exempt status as an educational organization?

Here were some of their questions:

I found your website and found it to be most interesting and helpful to homeschool co-ops.  I would like to schedule a personal consultation with you.  I am part of a homeschool group that informally hired a teacher to teach certain classes in past years, but this coming year the teacher wants a contract.
Rosemary in MD


I saw your website and had some general questions for you.  Appreciate your ministry to homeschoolers. We are trying to decide whether our group should be a sole proprietorship owned by person or try to establish a nonprofit. What would be the pros and cons of each? What if we can’t afford to file for tax exemption at this time?  What are our choices if our gross receipts are around $11K/year?
Teri in CA

There are several options for homeschool organizations who are trying to decide how to structure themselves. I advised the leader from CA to read this article:

When to become a 501c3?

I offered a private phone consultation and discussed the concerns and options with the leader from MD. I explained that I doubted the IRS would grant 501c3 “qualified charity” status to a group with only seven families. An IRS qualified charity is supposed to serve a public good, not the needs of only seven families.

Instead of pursuing 501c3 tax exempt status, we discussed that the hired teacher is really running a for-profit business (a sole proprietorship) with seven families as her customers. I shared with her several sample contractor agreements the teacher could use in her business.

There is a sample contractor agreement available in my ebooks Money Management in a Homeschool Organization and Paying Workers in a Homeschool Organization.

Thank you again for the consultation.  It answered a lot of questions for me, and I appreciate your support. Thank you also for the contractor agreements – I have been reading through them.
Rosemary in MD

If you have a unique homeschooling situation and would like to schedule a private consultation with me, please send me an email at Carol@HomeschoolCPA.com. Tell me a little about your group and we can arrange a mutually convenient time to talk.

Carol Topp, CPA

Hosting a booth at county fair makes history

The San Diego Christian Homeschools hosted an information booth at the San Diego county fair. It was the first time in the fair’s history that a homeschool organization had been featured there.

Leader Lisa Vaca, wrote to tell me about it:

I just wanted to share with you about how blessed we were to be able to host a homeschool information booth at our County fair yesterday. This all happened thanks, in part, to the encouragement and tips of you, Kristen and Denise (of HomeschoolGroupLeader.com) , and thanks to the huge help of Carol with our non-profit filing last year. (You’re very welcome!)

Our booth was a big hit and the organizers of the non-profit booths at our County fair are begging us to return again next summer. We were able to get HSLDA and other homeschool organizations to send us brochures and publications to hand out, plus we got some of our SDCH kids involved in the photography and displays.

Through this Homeschool Info Booth we were able to introduce homeschooling to our community in a fun, new and positive way, and answer the public’s many questions about home education.



Isn’t that a great idea? The San Diego Christians are reaching out to others in their community to share the benefits of homeschooling.

Carol Topp, CPA

P.S. The San Diego Christian Homeschoolers obtained 501c3 tax exempt status (with my help) which gives them extra credibility in the eyes of their community. Learn the benefits of 501c3 tax exempt status for your homeschool group  in this article Do we need 501c3 status?

Small homeschool groups receives official IRS Letter without 501c3 status

Hi Carol,

I know I’ve come across this information on your site before, but can’t find it today.  I am a leader for a smaller homeschool support group (50 families).  Each year, only about $1,000 passes through our bank account.  I have obtained an EIN so we can open a bank account but we are also interested in non-profit status.  The main reason for this is so people can make contributions and also so we can avoid paying sales tax.  I read on the IRS site that we do not need a form 1023 if we have less than $5,000 annually.  If that is the case, how do we prove our non-profit status?

Thank you so much for your help.  Your site has been very helpful to us.

Shelley T, Illinois

Shelley,

Good question.  I decided to call the IRS Tax Exempt Customer Service at (877) 829-5500 on your behalf.  First, Mrs Baker, the IRS employee said that you would have no proof of tax exemption because you do not have the IRS determination letter.  That’s the letter the IRS gives nonprofits after their tax exempt application (Form 1023) is approved.

Then she mentioned that the IRS can send a letter stating that some nonprofits such as yours are small enough that they are not required to file Form 1023. I asked for that letter to be mailed to you.  That’s the closest thing you’ll have to “proof.” At least it will be from the IRS and addressed to your group.

I found your mailing address on your website. Good thing you had an EIN, too.  She verified the mailing address I gave her with your EIN.

Look for the letter in 10-14 business days.

Carol Topp, CPA

Follow up: Shelley received her letter from the IRS 14 days later. It simply stated “We have no record that your organization has been recognized as exempt from federal income tax.” It went on to explain the IRS forms and publications to apply for tax exempt status.  The letter closed with a paragraph explaining that “an organization organized and operated exclusively for 501(c)(3) purposes…does not have to file for exemption unless its annual gross receipts are normally more than $5,000.”

Advice to homeschool leaders:

If you are a small homeschool nonprofit (gross revenues under $5,000 a year), and desire a letter from the IRS explaining that you are tax exempt, do what I did for Shelley and call the IRS.  Request a letter explaining the exemption for filing a Form 1023 for small nonprofits.

If your homeschool organization brings in more than $5,000 a year, it is time to apply for tax exempt status with the IRS (or time to start paying tax on your surplus!). Read more here:

When to become a 501c3?

Questions? Send me an email. I can help!

Carol Topp, CPA

IRS starts revoking tax exempt status May 17

IRS
Homeschool leaders, if your organization has 501c3 tax exempt status be sure to file your annual Form 990N, 990 EZ or 990 or risk losing your tax exempt status. The IRS is beginning automatic revocation of tax exempt status May 17, 2010.

Hundreds of thousands of small non-profits, from Little League teams to community soup kitchens, could lose their tax-exempt status on Monday because of an IRS filing requirement.

The 2006 Pension Protection Act included a provision requiring all non-profits to file an annual return with the IRS.

Previously, non-profits with annual revenue of less than $25,000 were excluded. Non-profits that fail to file a return for three consecutive years lose their tax-exempt status. On May 17, the three-year clock runs out for non-profits that haven’t filed a return since 2007.

The Urban Institute estimates that up to 365,000 non-profits could lose their tax-exempt status if they fail to file by Monday. Groups that miss the deadline will have to apply for a new exemption and pay a user fee of up to $850. They could also be liable for taxes on any revenue earned before their exemption is renewed.

The requirement does not apply to churches or church-related operations.

Non-profits with less than $25,000 in annual revenue can file a 990-N, an abbreviated online form. Completing the online form takes less than 10 minutes, says Tim Delaney, president of the National Council of Nonprofits.

What should you do if your organization loses its tax exempt status?  The IRS says you will need to reapply for tax exempt status.

The IRS as a FAQ page.

And I can help.  I assist homeschool organizations with tax exempt applications.  See my Services page for details.

Carol Topp, CPA

How do homeschool groups identify their status as a public charity?

A homeschool group in MO is applying for 501c3 tax exempt status and had a question.

Hello Carol
I am working with Crossroads Christian Connection in MO. We need to complete our 1023 (Note: He means IRS Form 1023 Application for 501 Tax Exempt Status) . The question I have is on Part X Public Charity Status. We are a small homeschooling group of about 45 families with revenue of less then $5,000 per year, on line 5, I need to know how home-school groups identify their status as a public charity.
Do you have samples of other groups that have filed the 1023?
Thanks

Greg S


Greg,

Homeschool groups are usually classified as 509(a)(2) organizations because more than 1/3 of their income comes from membership fees or “activities related to the exempt function” (box 5h).

Form 1023’s are public information so you should be able to request a copy from any other 501c3 organization. You can use the IRS website to find homeschool organizations with 501c3 status. (Go to https://www.irs.gov/charities/index.html and click on Search for Charities on the right column). Guidestar.org also posts Form 1023’s for charities.

I provide a review service for the Form 1023. From my website:


Buying Peace of Mind
A review of forms you have prepared yourself. Save money by doing much of the work yourself. I will review Forms 1023 or Annual Form 990 and offer my opinion and advice. Cost: $100 per form. Time: 1-2 weeks.


I’m doing a review right now for a homeschool group in KY. I just sent them two and a half pages of corrections or omissions they had made on their Form 1023 as well as suggestions on how to phrase their Part III Narrative to help the IRS understand their mission. Please contact me if you’d like me to review your application before you mail it to the IRS. I’d be happy to help.

Carol Topp, CPA

Homeschool group avoids IRS tax notices

A homeschool group in Georgia asked for my help because they had been getting letters from the IRS about back taxes.

We are in dire need of your help. Our homeschool group has received notices from the IRS saying that we need to contact them regarding our overdue taxes. Our group was incorporated (in 2003) but we have not filed any paper work (tax returns or corporate updates) since. Please advise, as soon as possible.
TD, Georgia

I e-mailed and spoke to this homeschool leader several times, so I’ll summarize the resolution:

The treasurer e-mailed me because she had been getting letters from the IRS stating that the homeschool group was late in filing their corporate income tax return. The group ignored these letters for a few years until they found my website. It seems that the original founder had mistakenly thought that the group owed corporate income tax on their surplus. She had filed a Form 1120 (Corporate Income Tax Return ) with the IRS and paid them $71 several years ago. The IRS expected to see corporate tax returns every year thereafter and was mailing the letters when the returns were not filed.

Fortunately, the group had filed for nonprofit incorporation status with the State of Georgia several years before. This was solid documentation that the group was a nonprofit organization (even they did not have 501 tax exempt status with the IRS).

I called the IRS on behalf of the group and the IRS employee told me to mail a cover letter and a copy of the nonprofit incorporation certificate from the State of Georgia. I did so and when I called the IRS two weeks later, the IRS employee told me that the situation was taken care of, the case was closed and the group wouldn’t be getting any more letters! (We didn’t ask for a refund of the $71 previously paid, though!)

That is an excellent example of how nonprofit incorporation status helped one group avoid paying federal corporate income tax. I’m not sure that I could have convinced the IRS of their nonprofit status without the nonprofit incorporation certificate from the State of Georgia.

This is NOT to say that state nonprofit incorporation is the same as tax exempt status with the IRS. Tax exempt status with the IRS (granted by applying to the IRS using Form 1023 and paying the IRS fee) is the only way to guarantee that your group’s financial surplus will truly be classified as tax exempt.

You can read more about the benefits of nonprofit incorporation and tax exempt status in my book The IRS and Your Homeschool Organization.

Carol Topp, CPA