Form an LLC to homeschool your own children: Good idea or not?

Hi Carol, I love your website – so much great information!
Can I incorporate and form an LLC where my husband would hire me/my company to teach our children? If not, would I need to start some sort of online “resources for homeschool families/consulting” company in order to incorporate?
Thanks so much, Allison

Allison,
Thank you for the kind words about my website. I’m glad to hear it was helpful.

I’ve been asked questions like yours before.

Here’s a blog post on a similar question:
“Incorporate yourself and write off homeschool expenses.” Really?

And in this blog post, I explain why your idea to incorporate or form a business as an LLC and be hired by your husband to homeschool your own children doesn’t work from a financial and tax perspective:

“Sometimes homeschool families try to get clever and think that they will form a homeschool business and deduct the expenses. The idea is for the dad to hire his wife to teach their children. Then they can deduct school supplies, the mom’s wages as a homeschool teacher, etc.
Sounds pretty clever, huh? Except it doesn’t work anymore than paying mom to cook and feed the family by running an “in-house restaurant” won’t work. That’s because in both these plans (homeschooling as a business and in-house restaurant) there are no customers that are paying for the mom’s services.
Also, the mom has to declare her income to the IRS and she will have to pay taxes on it! That’s why families don’t hire mom to run an in-house restaurant and they shouldn’t hire mom to homeschool the kids either.
So forget the idea of forming your family homeschool as a business.”

Let me explain the cash flow a bit and why this idea doesn’t work.

Mom forms a business. Her only customer is her husband. They agree to pay her business $20,000 a year to homeschool and teach the children.
Dad moves $20,000 from the couple’s checking account into Mom’s business checking account. By the way, Dad has already paid income tax on this $20,000. Let’s assume its about $2,400 in federal income tax he has paid using a 12% tax rate.

Mom pays for supplies to homeschool her own children from the business checking account, which may not be allowed by the IRS as a business deduction because it is a personal expense of the business owner, but we’ll ignore that fact for now.

At the end of the year Mom’s business has a profit of $15,000.

She files a tax return (and pays extra for a tax professional or tax software to prepare the business’s tax return). She must pay federal income tax on her business profit of $15,000. It will be about $1,800 in federal income tax assuming a 12% tax rate. Remember that Dad already paid $2,400 in federal income tax on this money when he purchased Mom’s services!

In addition, Mom will pay Self-Employment tax of 15.3% of her $15,000 profit. That comes to $2,295 more in tax. Self-employment tax is Social Security and Medicare tax for self-employed people.

Did Dad get to deduct the $20,000 he paid to Mom’s business? No! Why not? Because nowhere on the IRS Form 1040 is there a deduction for homeschooling expenses! They are personal expenses for Dad and not tax deductible!

So in total Mom pays an additional $4,095 in federal income tax with this idea.

Creating a business to homeschool your own children doesn’t make sense from a cash and tax perspective!


If you are interested in starting a business to the homeschool market, my ebook Taxes for Homeschool Business Owners will be a big help.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

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