The homeschool co-op that I am building cannot qualify for 501(c)(7) social club because we offer classes, therefore we have an educational purpose.
But are we required to have a 501(c)(3) status?
We are not interested in the benefits of tax exemption. We do not generate a profit, do not receive donations or do fundraising; no one is paid.
As far as IRS cares, we all pay income tax as individuals, and pay sales tax as individuals for our activities. I still can’t find an answer regarding 501(c) requirements for our specific situation. Can you help? Am I over thinking it?
A nonprofit does not have to apply for tax exempt status; then your homeschool co-op is welcome to then file and pay its taxes!
What tax return to file can be confusing. If your homeschool group is a nonprofit corporation, then your group must file a Corporate Income Tax Return, IRS Form 1120 (it’s quite complex, so you may need help). If your organization is an unincorporated association, it’s likely that you must file a Partnership Tax Return, Form 1065 (also quite complex).
When preparing these complex tax returns and paying taxes is the alternative, tax exempt status doesn’t look so bad, huh?
The US offers a wonderful opportunity for nonprofit groups to keep all of their surplus and avoid paying taxes on it. And you may have a surplus (profit) in the future. I typically advise homeschool groups to have a financial buffer every year for emergencies or unexpected expenses.
But there are other advantages to 501c3 tax exempt status well!
Sometimes small nonprofits want to avoid applying for 501c3 status because they fear the cost and complexity. Frequently a lawyer tells them that applying for 501c3 status is complicated and costly, but that is usually because lawyers deal with large organizations. They may be completely unaware of the easier, online application for 501c3 status.
The cost to apply for small organizations is only $275 (IRS fee) and can be accomplished in 30-90 days. If you use professional assistance the cost can increase.
And the annual report to the IRS (Form 990-N) is a lot simpler than a corporate or partnership tax return! The IRS calls it their electronic postcard. It will take you 5-10 minutes once a year. That’s it!
My webinar on 501c3 Application will explain the benefits, costs and process of getting 501c3 status.
Self declare tax exempt status
If a nonprofit’s revenues are less than $5,000, it can self declare your 501c3 tax exempt status and not have to officially apply for tax exemption.
But the IRS does require all small, self-declared 510c3 tax exempt organizations to file an annual information return, the Form 990-N that i mentioned earlier.
To be able to file the Form 990-N, you need to call the IRS Customer Account Services and ask to be added to their database so you can begin filing the Form 990-Ns. It typically takes 6 weeks after you call to be added to the IRS database.
Here are some tips for making the call to the IRS: How to get added to the IRS database and file the Form 990N