CC Directors: Do not give yourself a 1099-MISC

I have spoken to several Classical Conversations (CC) Directors lately who tell me that they gave themselves a 1099-MISC to report what they paid themselves.

But this is not correct! CC Directors should not give themselves a 1099-MISC.

I can understand their confusion. These Directors are business owners of a Classical Conversations community offering classes for homeschool students and their parents in how to educate their children using classical methods. Typically, these Directors hire tutors as independent contractors to teach a class once a week and frequently the Directors also teach a class themselves.

They give their tutors a 1099-MISC to report their earned income and so they think they should give themselves a 1099-MISC as well. But this is not the correct way to report income as a CC Director.

As a business owner (and I’m referring to a sole proprietorship filing a Schedule C on their Form 1040) a CC Director is not paid as an independent contractor. Business owners are not “paid” at all. Instead they get to keep all the profit that the business makes. That profit is their “pay” or earnings from the business.

How to correctly report your income from your CC business

One Director told me that she reported her 1099-MISC as her total income on her Schedule C Business Income or Loss. But this is not correct. I explained that she needed to report all the income that the participating families paid her. That amount is her total income, not what she “paid herself” and reported on a 1099-MISC (incorrectly).

“Oh dear,” she replied, “I’ve been doing it wrong for three years!” Yes, she had been. 🙁

I explained that she needed to file a Form 1040X  Amended Tax Return to correctly report her income on her Schedule C for those prior years.

I also advised her to contact a local CPA to help her learn how to correct her tax returns and prepare it properly in the future.

How to correct a 1099-MISC

If you have given yourself a 1099-MISC, then you need to correct it ASAP!

Start by reading IRS Instructions to Form 1099-MISC page 10. Follow the instructions carefully. Check the CORRECTED box. Include yourself with $0 (zero) in Box 7  Non-employee compensation.

I recommend you contact a local CPA to help you file the corrected 1099-MISC.

If you’ve already prepared your tax return with the incorrect 1099-MISC, you’ll need to file a 1040X as well to amend your tax return.  It’s time to get professional help!


There is a lot to learn about running a business. I don’t mean to discourage you or anyone else away from operating a homeschool business. You provide a valuable service to homeschool families! I am offering this webinar to help you understand the tax implications:

I recorded a webinar on Tax Preparation for Homeschool Business Owners. It should be a lot of help to tutors, non-employee co-op teachers and other homeschool business owners! You can watch the recording at HomeschoolCPA.com/HSBIZTAXES for a small fee of $10.

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

“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


Business taxes and paying employees or independent contractors is not a guessing game! There are professionals like CPA and tax professionals who can help you file your 1099-MISC and tax returns correctly.

How to find a local CPA or accountant
I recommend you hire a local CPA or tax professional because they know your state and local laws best. If you do not already have a CPA or tax professional (and I don’t mean a store front tax preparation service) I recommend you try Dave Ramsey’s Endorsed Local Providers or Quickbooks Proadvisors. A lot of CPAs listed on these sites specialize in small businesses.

Business Consultation

I am not accepting new tax clients, but I will offer a phone consultation for CC Directors, tutors and other homeschool business owners. Contact me to request a phone consultation.

 

Carol Topp, CPA

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I’m a Classical Conversations Director. Do I have to file any forms with the IRS?

On April 15 last year (you know, that day the personal tax returns are due!), I received this email:

I need to be sure I don’t have any tax forms to file with IRS. This was our first year as a CC community, with only 2 tutors and 12 children.
-Name withheld to protect the guilty

 

Just as aside before I answer her question: This CC Director treated her tutors as independent contractors all year long. That may or may not have been the proper worker classification for them. She may have exerted enough control over the tutors that they should have been treated as employees, but I did not address that issue with her. At this point, what the director did in the past with regard to paying her tutors is done; it cannot be changed now. I addressed what she needs to do now to properly file her taxes.

Dear Name withheld,

As a Classical Conversations (CC) director, you are a small business owner.

You should have given your tutors a Form 1099-MISC to report the income you paid them (assuming you classified them as independent contractors). The Form 1099-MISC is to be given to each tutor by January 31 each year for the income paid in the prior year. A copy is also sent to the IRS. It sounds like you missed that deadline.

By the way, you cannot simply print the Form 1099-MISC from the IRS website. You must order forms from the IRS, purchase them at an office supply store, or use an online filing program like Yearli.com (that’s the service I’ve used to file my 1099-MISC and my affiliate link).

You should also have reported your income and expenses from your CC business on your personal income tax return, using Form 1040 Schedule C Profit or Loss from Business.

If you had a profit of more than $400 for the year, you will also owe Self-Employment Tax. It is calculated on Form 1040 Schedule SE.


Taxes for 2018 will be very confusing with the new tax law changes and redesigned IRS Form 1040. I am offering this webinar to help you understand how to prepare your tax return:

I recorded a webinar on Tax Preparation for Homeschool Business Owners. It should be a lot of help to tutors, non-employee co-op teachers and other homeschool business owners! You can watch the recording at HomeschoolCPA.com/HSBIZTAXES for a small fee of $10.

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

“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


I’m afraid Name-withheld is very late in filing these forms! She may owe a penalty for late filing your 1099-MISC forms. She may need to file an amended federal income tax return (Form 1040X)  if she failed to include her CC income and expenses. She may also need to amend her state income tax return.

I strongly recommend that Name-withheld contact a local CPA to discuss amending her federal and state income tax returns.

She may also need to address if independent contractor status is the proper classification for her tutors. My book Paying Workers in a Homeschool Organization can help determine the best classification for workers.

Carol Topp, CPA

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Are Classical Conversations tutors employees or independent contractors?

Hi Carol,
I am a part of a Classical Conversations community with a Foundations/Essentials director. The Foundations/Essentials directors hire tutors to run the classrooms on community day.

I am concerned that the  tutors are being treated as employees even though they are paid as independent contractors. Can a Foundations director hire tutors as independent contractors and still be able to specify what time they start, what material to cover and for how long they are to cover it, require training in the summer and training every 6 weeks of class etc?

Would a contract help? It seems like the contract could call the tutor an independent contractor but the Director could still treat them like employees.

This is hugely concerning and our campus wants to operate in a legal way. We are considering hiring a lawyer to help us understand all this. Is the lawyer the way to go? Or would you be able to advise on how to handle this?

We want to be legal and try to sort out truth in this whole legal situation.

Thank you for your time,

Katherine

 

Katherine,

Thank you for contacting me. I have been talking to several Classical Conversation (CC) Directors and tutors about worker classification. It’s a confusing and complex topic!

Factors: control and key activity

The question of whether CC tutors are independent contractors (IC) or employees involves many factors to consider including some you mentioned such as training, specific time and place to work, the curriculum to use, etc. But you are majoring in the minors and neglecting the overarching issues.

Two overarching factors to consider are:

  1. the amount of control the Director exerts (or has the right to exert) over the worker
  2. if the tutors are providing the key activity of the business.

By the way, these factors of control and providing a key activity apply to all types of homeschool groups, not just Classical Conversations.

Some homeschool organizations may depend heavily on the tutors’ services as the key activity of the business, while other homeschool groups may not use tutors as the key activity because they rely on volunteer parents to teach their classes.

My conclusion: CC tutors are employees

In my professional opinion as a CPA qualified and licensed to practice before the IRS and after much research and interviews with CC Directors, I conclude that CC tutors provide the key activity of the business and the Director has the right to exert control over the tutor, making them employees.

Would a contract help?

You asked, “Would a contract help? It seems like the contract could call the tutor an independent contractor but the Director could still treat them like employees.”

You’ve hit the nail on the heard. Having a contract is not assurance that a tutor is an independent contractor; how they are treated carries more weight in determining proper worker classification.

Worker Classification Determination

You asked, “Is the lawyer the way to go?  Or would you be able to advise on how to handle this?

I can make a fact-based worker classification determination. In this determination, I substantiate my opinion based on all the facts, not just the few you mentioned, and court cases involving worker classification.


Additionally, I also just updated  my book Paying Workers in a Homeschool Organization. It explains both the current criteria the IRS uses and the criteria they have used in the past to determine independent contractor or employee status.

 

 

 

 

You could, of course, convert all your tutors to employees, and sleep better at night! I can explain the steps you’ll need to take.  It will be more paperwork and more expense, but you won’t worry about an IRS investigation on worker status.

Carol Topp, CPA

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