Speech and Debate Club – Unsure of Its Setup?

Carol Topp, the Homeschool CPA, is frequently asked by small homeschool groups if they are setup up correctly.

Do they owe taxes?

Do they need to be a nonprofit corporation?

Henry  writes, “Can a small homeschool education club focused on speech and debate be categorized as an “unincorporated association” and therefore not apply for recognition by the IRS and not file taxes?

Less than $2,000 pass through the club to pay for insurance and facilities…

This club formed in 2015 and I joined last year and become the director this year. I am wondering if we are structured correctly…”

Listen to Carol’s reply to Henry’s questions on today’s episode of the Homeschool Leader podcast.

  • Can the Speech and Debate Club be a 501c3?
  • Do they need to be a formalized entity?
  • Should they get an EIN?
  • What should they do to be structured correctly?
  • Do they owe taxes?

In the podcast, Carol mentioned how a small nonprofit like Henry’s club can self-declare 501c3 tax exempt status. Carol has a few blog posts on self-declaring 501c3 tax exempt status and the filing the IRS annual notice, Form 990-N:

https://homeschoolcpa.com/how-to-get-added-to-the-irs-database-and-file-the-form-990n/

https://homeschoolcpa.com/irs-form-990n-faq/

In the podcast I mentioned my book The IRS and Your Homeschool Organization

Does your homeschool group need to pay taxes? Could they avoid paying taxes by being a 501c3 tax exempt organization? Do you know the pros and cons of 501c3 status? Do you know what 501c3 status could mean for your homeschool group?

I have the answers for you in my book The IRS and Your Homeschool Organization. The information I share in my book has been helpful to homeschool support groups, co-ops, music and sports groups and will help you understand:

  • The benefits of 501c3 status
  • The disadvantages too!
  • What it takes to make the IRS happy
  • What your state requires
  • Why your organization should consider becoming a nonprofit corporation
  • What is the difference between nonprofit incorporation and tax exemption
  • IRS requirements after you are tax exempt

The webinar Create a Nonprofit for Your Homeschool Community is also helpful.

The webinar is 90 minutes and covers:

  • The difference between a business and a nonprofit
  • What are the advantages and disadvantages of being a nonprofit
  • Forming a board: who can be one it, what do they do, etc.
  • Creating bylaws
  • Drafting a budget
  • Setting up a bank account
  • Forming a nonprofit corporation in your state
  • The timeline to get this all done
  • The expense to accomplish this

Conflict of Interest: Paid Teachers as Board Members in a Homeschool Group

A homeschool leader is concerned about a conflict of interest if she wants to be a board member and paid teacher.

Jessica, who wants to start a homeschool co-op emailed HomeschoolCPA Carol Topp this situation:

“I have a question about the conflict of interest issue. Three ladies and I would like to incorporate to teach classes together and form a co-op. If we are the three board members, then does that mean we cannot profit by also teaching? Do you have any article that clarifies that?”

Listen as Carol explains:

  • The conflict of interest between being on the board and being paid by a nonprofit
  • Inurement and self-dealing
  • Why it is not a good practice for nonprofit to have paid staff also serve as board members.
  • Three options Jessica has:
    • Form a 3-way partnership (a for-profit business)
    • Have a separate, independent board that hires teachers as staff
    • Grow the board so the majority is not paid teachers

Featured Product

In the podcast I mentioned my webinar Create a Nonprofit for Your Homeschool Community

What are the advantages and disadvantages of being a nonprofit?

Forming a board: who can be one it and what do they do?

How hard is it?
What are the steps to take?
How fast can it get it done?
How much will it cost?

I have recorded a webinar to answer all these questions and more!

Create a Nonprofit Organization for Your Homeschool Community

San Antonio, Austin and Houston: Q&A with HomeschoolCPA this week

San Antonio, Austin and Houston, Texas will all be getting live Q&A time this week with Carol Topp, CPA, the Homeschool CPA!

San Antonio: Tuesday February 25, 2020
from 7:00 to 8:30 pm
on the lovely grounds of
Family Educators Alliance of South Texas (FEAST)
7735 Mockingbird Lane • San Antonio, TX • 78229
Register here for San Antonio

Austin: Wednesday February 26, 2020
from 6:30-9:15 pm
at
Calvary Worship Center (North Austin, close to TX 45 & N Mopac Expy)
14901 Burnet Road
Austin, TX 78728 
More information and to RSVP for Austin

Houston: Thursday February 27, 2020
from 6:30-9:15 pm
at
University Baptist Church  (Chapel area)
16106 Middlebrook Dr
Houston, TX 77059  
More information and to RSVP for Houston

Each event is free, but the organizers would appreciate you register so they have a head count.

The San Antonio event is sponsored by Family Educators Alliance of South Texas and the Austin and Houston events are sponsored by Texas Homeschool Coalition with much appreciation!


Each event will have:

  • A brief session presented by Carol Topp, CPA, the HomeschoolCPA on “Topp Tips for Running a Homeschool Organization”
  • A Town Hall session for you to ask question and get advice from other homeschool leaders
  • Q&A time with Carol Topp, CPA
  • Professional advice on finances, legal structures, taxes, employees, insurance, etc.
  • A chance to look at HomeschoolCPA’s books
  • An opportunity to be encouraged by other leaders who understand you!

I hope to see you in San Antonio, Austin or Houston!

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

DIY 501c3 tax exempt status

In 2019 Carol Topp started an ambitious project. She set out to record 3 webinars to hep homeschool groups form a nonprofit and apply for 501vc3 status.

In this podcast she describes these 3 webinars.

Create a Nonprofit Organization for Your Homeschool Community

501c3 Application for Homeschool Nonprofits

IRS and State Filings for Homeschool Nonprofits

(click each title for details)

The 3-video set plus resources, ebooks, checklists, etc. sells for $50

This 3-webinar set is great for:

  • Brand new start up homeschool groups
  • Existing groups that never formed as a nonprofit
  • Existing groups that never applied for 501c3 tax exempt status
  • Homeschool communities run as a business that want to convert to be a nonprofit organization

Learn more about this 3-webinar set to apply for 501c3 tax exempt status.

Homeschool Teacher Accused Molester: How to Safeguard Children

The headlines that came proclaimed something we all fear: A homeschool teacher molests 17 year old girl.

Arkansas mom held for sexually abusing teenage girl

As homeschool leaders we never want to read about the horrific things that could happen in a homeschool program.

In this specific case, the events between the accused and victim did not take place during the co-op time.

Take time to assess your risk based on your activities. Develop, communicate, and stick to a plan. The links below will help.

Check with your state to determine who is mandated to report child abuse.

In this case, a parent reported her concerns to the pastor of he church where the homeschool co-op was held. He is a mandatory reporter and the pastor reported the abuse to the police.

Reporting is typically confidential.

Your leadership needs to know what to do if there is a report of suspected abuse. It is never the leadership’s responsibility to investigate, only to report to authorities.

Often, leaders feel they should investigate to see if it really happening – feeling that they need to have the claim substantiated before reporting, but that’s not true.

 

Resources to Safeguard Children

There are lots of websites that offer guidelines on assessing your risk and creating a response plan. Below are two that will get you started.

This important thing is not that you read these sites.

The important thing is that your board create and stick to a plan.

Get educated and act on it.

Managing and reducing risk in your program

Key Principles in Youth Protection

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders…to safeguard children

Does bank account need to be less than $5,000 to be self declared tax exempt?

We are a small group (43 families) starting a non-profit. We have used several of your free and purchased resources. Thank you for your work in this space.

Question…does the opening balance of the bank account need to be less than $5,000 to remain self declared?

We will be receiving about $5,000 from a now defunct homeschool group to help us start off.

Our annual income won’t exceeded $5,000, so we plan to self-declare our 501c3 tax exempt status. Will the account balance of over $5,000 be considered income of over $5,000?

Thank you in advance for any information you may provide.

 

 

Thank you for contacting me.  I’m glad my resources have been helpful.

You asked, “..does the opening balance of the bank account need to be less than $5,000 to remain self declared?
No. The IRS only looks at the annual gross revenues, not bank balances.

If the original groups wants to gift the new organization $5,000, that would be income (a donation) in the year it is received.  So that large donation could mean the new group has over $5,000 in gross revenues in that year.

But the IRS guidance* for self declaring 501c3 tax exempt status says:
normally not more than $5,000.”

A one time large gift would not be “normal,” so the organization could still self-declare 501c3 tax exempt status if your normal gross revenues are under $5,000/year. 🙂

I hope that helps!

* Source: Instructions for Form 1023 page 1 “Form 1023 not necessary.”

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Top 10 Tips for Homeschool Leaders: Insurance and Record Keeping

 

Homeschool leaders sometimes wonder when they need an insurance policy. And what type of policy do they need?

 

In this episode Carol Topp, CPA discusses the various types of insurance a typical homeschool group might need. Additionally, homeschool leaders get a few tips on record keeping and reimbursements for expenses.

 

This is the final part of a 5-part series on Top 10 Tips for Homeschool Leaders, a workshop given to homeschool leaders in Wichita, Kansas

 

 

Each episode can be found at HomeschoolCPA.com/Podcast. In the 5-part podcast series Carol will cover:
Episode # 180 Board duties
Episode # 181 Bylaws
Episode # 182 Preventing fraud
Episode # 183 Paying Workers
Episode # 184 Insurance and Record keeping

 

Featured Resource:

Webinar on Financial Statements

In the webinar Carol mentioned record keeping, reimbursements, and financial statements. To help homeschool leaders, especially treasurers, Carol has a free webinar on Financial Reports for Homeschool Groups. She shows you good, bad and really ugly financial reports!

Watch the webinar (no cost) here.

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What are laws and what are good practices for nonprofits?

I’m trying to figure out what is actual “law” vs. what is normal or suggested practice for nonprofits.

I know someone whose CC group is a nonprofit. She and her husband make up the board and fill the roles of President, Secretary, and Treasurer. She is the executive director and gets paid for that role. She fills out a 1099 as do her teachers.

B.C.

B.C.,

That is an excellent question!

A nonprofit should have a board of at least 3 unpaid, unrelated people. They set the mission, purpose, vision. They sign all agreements with the church host and the CC licensing agreement. The board decides who to hire and fire. Directors or tutors are employees under the direction and control of this board. This board should not be paid. Being paid for serving on a nonprofit board creates a conflict of interest.

Some of the things I mentioned are laws, mostly driven by state laws about number of board members, their duties, etc.


You can learn what your state laws regarding nonprofit board governance are by visiting :
Nonprofit Governance by State


Some are laws driven by the IRS for 501c3 status such as conflict of interest, inurement, etc.

All the things I mentioned are good practices for nonprofit board members to be in compliance with their fiduciary duties of care, loyalty and compliance.


To learn more about your fiduciary duties as a board member read:  Serving on a nonprofit board: What is required?


 

I look at it like parenting. There is no law that says you must be a good parent, but there are certainly good, sound practices that any responsible parent should follow.

The same is true with operating a nonprofit. Good, responsible board members will avoid conflicts of interest, will have independent board members, will execute their fiduciary duties of loyalty, care and compliance, etc.

The example of the CC nonprofit that you shared is so far from a good example of a well run nonprofit on so many levels that they could be out of compliance with the IRS and state laws. Just like some parents are so neglectful that they violate the law.

But I hope the leaders of the group you mentioned are motivated by a true desire to serve their community of homeschooling families in a good and responsible manner and not just complying with the bare minimum of the law.

We don’t want that for the CC group nor for homeschooling in general. Poorly run homeschool nonprofits reflect badly on all homeschool organizations.

 

 

For help in training your board purchase my  Homeschool Organization Board Manual. It is a combination of a template for your board to create binders to keep important documents and a board training manual to explain the board’s duties and responsibilities.

 

Carol Topp, CPA
HomeschoolCPA.com

California’s new ABC test for Independent Contractors. How will it affect homeschool groups?

California’s new law (AB5) puts into affect the 2018 ruling by the California Supreme Court in the Dynamex case that makes it more difficult to treat workers as Independent Contractors. The new law uses an ABC test introduced in the Dynamex case. It’s a simple 3-part test that makes it more difficult to legally pay workers as Independent Contractors.

The California Supreme Court said that the worker could only be an independent contractor if each (meaning ALL) of these three factors was met:

  1. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact and
  2. The worker performs work that is outside the usual course of the hiring entity’s business and
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

I recorded a podcast episode about the ABC test when it first came out. ABC Test for Independent Contractors (podcast episode)


How does this affect homeschool groups?

  • If your homeschool group is a nonprofit organization, these employment laws apply to your organization. Your nonprofit status (with or without 501c3 tax exempt status) does not exempt your organization from obeying the employment laws of the IRS and your state.
  • If you’re in a homeschool business, such as a CC Community, then you are affected by this ruling, especially if you live in California.
  • If you are an all-volunteer homeschool program (no one is paid), then this law does not affect you. 🙂

This blog post explains why I believe most teachers in a homeschool program should be paid as teachers: Why I think most homeschool teachers should be paid as employees


I’m a homeschool group leader. What do I need to do?

If you live in California, convert your teachers/tutors to employees starting January 1, 2020.

If you live in another state, strongly consider having me (or another qualified CPA) do a worker determination. There may be changes you can make to your homeschool program that are simple and inexpensive.

Will this spread to other states? What about the IRS?

Probably. I predict within 5 years, most states will adopt something like the California ABC test for Independent Contractor status.

So far the IRS is not using the ABC test, but they use similar criteria that causes me to conclude teachers in a homeschool program should be treated as employees not Independent Contractors. Read my reasons.

Which law do I follow? State or Federal/IRS?

The general rule is that you must follow whichever law is most generous to employees (not yourself as the employer or hirer). Federal and state default status is that workers are employees. The burden of proof is on the employer (your homeschool group) to prove they are eligible for independent contractor status.

I talked to a CPA about this a few years ago and he said we’re fine

or

My CC SR or AR said I’m OK treating my tutors as ICs; their lawyers know about the situation.

A worker determination should be in writing on the letter head of either a CPA, Enrolled Agent or attorney. Only those three professions are allowed to practice before the IRS. This determination, in writing and on the letterhead of the professional, may help abate any penalties for misclassifying workers if the IRS or your state audits you.

Do not rely on verbal statements. Do not reply on verbal statements made by CPAs, EAs or attorneys. Get it in writing. Do not reply on verbal statements made by non-CPAs, non-EAs or non-attorneys, no matter how reassuring they are that they have talked with a professional. Get an opinion specific to your organization in writing.

Ask for a statement in writing addressed to your particular business/nonprofit from a qualified professional who has assessed your situation in particular.

 

What if the parents pay the teachers directly?

or

My CC tutors are now sublicensees, not my Independent Contractors; I’ve been told that is OK.

The fact that you (as the homeschool group or homeschool business owners) do not pay the worker does seem to avoid the worker classification issue, but it introduces at least two other issues:

  1. You cannot control, supervise or direct that worker. They are their own business owner and you have no opportunity to oversee their methods or their performance. You cannot direct them; you cannot supervise them. Do you really want that? Would your parents accept this? You’re working with children, don’t you need to supervise and direct the people teaching the children?
  2. If you host your program at a church or other property-tax exempt facility (like a library), then the teacher/sublicensee tutor is conducting his or her business on church property. Does your church host know this? They may have a policy against conducting business on their property because it threatens their property tax exemption. Please refer to my Property Tax FAQ page for more information.

How can I learn more about paying workers?

My book will help


Paying Workers in a Homeschool Organization

  • Have a payroll consultation with Mary Musick, CPA (inactive) and current homeschool mom. Mary runs a bookkeeping service and will discuss payroll with you. It may not be as awful as you fear since you are probably hiring part-time, seasonal employees with no benefits. Her email is hfbkkpg@gmail.com.
  • Or have a payroll consultation with Jamie Buckland, The Classical Homeschool Consultant. Jamie runs payroll herself for her homeschool classical academy. She can do research on what your state payroll taxes are and reassure that if she can do it, you can do it! Jamie’s website is https://jamiebuckland.net/
Understand your risk, your legal and tax requirements, get compliant and get help! We don’t want homeschool organizations to get in trouble with the IRS or state agencies.

 

Carol Topp, CPA

Top 10 Tips for Homeschool Leaders: Paying Workers

 

Lots of homeschool groups hire and pay teachers to conduct classes. Sometimes these teachers are homeschool parents, but sometimes they are professional instructors. Homeschool leaders have a lot of questions about paying teachers and other workers.

 

 

Topics in this episode include:

• Independent Contractor or employee
• The factors the IRS considers in classifying workers
• What if parents pay teachers directly?
• How paying teachers affects your church host
• Can Independent Contractors receive tuition discounts

This is the fourth part of a 5-part series on Top 10 Tips for Homeschool Leaders, a workshop given to homeschool leaders in Wichita, Kansas.

Each episode can be found at HomeschoolCPA.com/Podcast. In the 5-part podcast series Carol will cover:
Episode # 180 Board duties
Episode # 181 Bylaws
Episode # 182 Preventing fraud
Episode # 183 Paying Workers
Episode # 184 Insurance and Record keeping

 

Featured Resource:

Paying Workers in a Homeschool Organization
Are you paying workers in your homeschool organization?

• Can a volunteer be paid?
• Should a worker be treated as an employee or independent contractor?
• Do you know the difference?

Homeschool leader and CPA, Carol Topp, has the answers to your questions in her book Paying Workers in a Homeschool Organization.
This 130 page book covers paying workers as employees or independent contractors. There are also chapters on paying volunteers and board members. It includes sample forms, tips and advice to help you pay workers in accordance with the IRS laws to help your organization pay their workers correctly. Written specifically for homeschool organizations.

 

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