Group over the $5K limit. What to do?

A homeschool leader wonders what are her choices for her group that bring in more than $5,000/year.

Hi Carol,

tn_texas2b I’m part of a homeschool organization that is considered an Unincorporated Non-Profit Association in the state of TX which by Texas law can not take in more than $5000. What should we do?

Thank you,

Sandy in TX

Dear Sandy,

I visited the State of Texas website to read about the Unincorporated Non-Profit Association laws. I could not find any restriction on the amount of money your organization can make.

I think I understand where you got the $5,000 threshold. The IRS does state in the instructions to Form 1023 (Application for Recognition of Exemption under 501c3) that:

The following organizations are excepted from the exemption application requirement: Churches, their integrated auxiliaries, and conventions or associations of churches; and an organization that is not a private foundation and the gross receipts of which in each taxable year are normally not more than $5,000.

So as long as your organization stays very small, you are tax exempt. If you make more than $5,000 gross revenues in a year, you need to file the Form 1023 to remain tax exempt with the IRS. So this is really an IRS/federal tax requirement, not a Texas requirement.

So you have several years over the $5,000 threshold. Your group has three choices:

  1. file IRS Form 1023 and become tax exempt
  2. pay income taxes
  3. restructure your group to stay under the $5,000 income limit.

Any of the options are workable. There are costs and benefits to all three options. Without knowing a lot more about your group, I cannot tell you which option is best for you.

Your group is not unique. Like many homeschool groups, you are finding that your organization is growing and doing more for homeschooling families. That’s wonderful, but then you can run into road blocks like the $5,000 income limits.

Carol Topp, CPA

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