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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Top 10 Tips for Homeschool Leaders: Preventing Fraud

 

Let’s hope fraud or embezzlement never happens in your homeschool group! Do you have safeguards to spot it and prevent it?

In the podcast Carol mentions her list of “Best Practices to Prevent Fraud.” Find it here.

 

This is the third part of a 5-part series on Top 10 Tips for Running a Homeschool Group, a workshop given to homeschool leaders in Wichita, Kansas. You will probably find many of the audience questions would be a question you might ask as well!

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

 

You might find Carol’s podcast series for Tiny Homeschool groups helpful

Tiny Homeschool Groups: Are We a Nonprofit?

 

Featured Resource

Money Management in a Homeschool Organization

  • Does your homeschool group manage their money well?
  • Do you have a budget and know where the money is spent?
  • Do you know how to prevent fraud?

This 115 page book will help you to open a checking account, establish a budget, prevent mistakes and fraud, use software to keep the books, prepare a financial statement and hire workers. Sample forms and examples of financial statements in clear English are provided.

Click here for more information

 

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Reimbursement policy for a homeschool group

We discussed during our phone call the need to require receipts from our homeschool program’s teachers before they are reimbursed. I have some board members that are concerned. They are afraid it will be seen as more trouble than it’s worth and that we will have fewer moms volunteer. Their question is whether receipts are necessary.

-BW

 

BW,

Reimbursements…yes, the paperwork and receipts are necessary, because if your homeschool organization gives a volunteer a check without getting a receipt from her, it is considered taxable income to the volunteer teacher (under what the IRS calls a “nonaccountable plan”).

But if the volunteer teacher gives you a receipt, then the money your homeschool group pays her is NOT taxable income to her.

Here’s a blog post you should share with your board: No receipts for expenses can get you in trouble!

Your homeschool program should have a reimbursement policy that is an “accountable plan” to avoid your volunteers having to report the reimbursement as income on their tax return.

To be an accountable plan by the IRS, your reimbursement plan must include all three of the following rules:

  1. The expenses must have a business connection; that is, the expenses must have been paid or incurred while performing services as an employee (or volunteer) to your organization.
  2. The volunteer or employee must adequately account for these expenses within a reasonable time (typically within 120 days). Your homeschool organization must require volunteers/employees to give you detailed information on these expenses, including date, time, place, amount, and  purpose for the expense.  Lots of homeschool groups create a reimbursement form. I offer a sample here (it’s an Excel spreadsheet so you can edit it if you like).
  3. You must require the volunteer or employee to return excess reimbursements within a reasonable and specific period of time (usually 60 days). This is applicable if you give money in advance to a volunteer. Giving and advance is not typical in homeschool groups, but a few groups have told me that they give advances to some volunteer teachers.

If all three of these requirements are not met, the plan is determined by the IRS not to be an accountable plan, and any expenses reimbursed to the employee by your homeschool program are taxable to the volunteer!

So now you can see the importance of requesting those receipts (and having an accountable plan)!

Better yet, use my sample reimbursement form (opens an Excel spreadsheet) since it collects all the information required by the IRS to have an accountable plan.

I strongly recommend that your reimbursement policy state that if no receipts are turned in, no reimbursement money will be paid to a volunteer!

 

My book Money Management in a Homeschool Organization offers tips on reimbursement plan and other aspects of managing the money in a homeschool group.

Carol Topp, CPA

HomeschoolCPA.com

 

Income and expenses are a “wash.” Do I have to record them?

I’m treasurer for a nonprofit homeschool group. Every year some of the teachers charge a lab fee and it all gets spent on lab equipment. Do we have to claim that as income or is it just a wash because it’s used for materials or experiments?

Homeschool Treasurer

 

 

Dear Homeschool Treasurer,

You should claim/record the lab fees collected in full as income to your group.

Then also record the lab or equipment expenses to clearly reflect both the income and the expense.

If you don’t record the income, because it is a “wash” (meaning the same as the expenses, so no effect on your profit or surplus), then you are guilty of both under-reporting income and under-reporting expenses.

Your board will not have an accurate picture of all the income and all the expenses.

And you’ll be lying to the IRS! This is obviously more serious if your homeschool group is a for-profit business.

I warn against mixing income and expenses in your bookkeeping in my book Money Management in a Homeschool Organization.

Please take a few minutes and record all your income and all your expenses.

Carol Topp, CPA

HomeschoolCPA.com

Helping Homeschool Leaders

How should a homeschool co-op set up their Quickbooks account?

Do you have something on your website or a resource on how a co-op should set up their QuickBooks accounts?

Michelle

 

Michelle,

I have a few posts about how to set up QuickBooks for a homeschool co-op:

Quickbooks Tips for Homeschool Groups on Sales
What financial reports do we need to generate monthly?

If you receive money in one year, but it’s really for next year (like early registration) then this is helpful:
Deferred Revenues in QuickBooks (opens a pdf file)

 

I actually don’t spend a lot of time talking about QuickBooks on this blog because there are so many good resources our there like this one (check out her QuickBooks tutorials):

5MinuteBookkeeping

A nonprofit called TechSoup has some great videos for using QuickBooks in a nonprofit:

https://www.youtube.com/playlist?list=PLRCtupIatuLkSlhtlXDyo7P7woeHORwgn

Finally, my book Money Management in a Homeschool Organization  has some tips for using QuickBooks like setting up a Chart of Accounts and a who are your “Customers” and what are your “Sales.”
I hope that helps,
Carol Topp, CPA

Holding a fundraiser to pay for homeschool curriculum

Photo credit TheMagicOnions.com

 

I homeschool my 3 children and 3 children of another family. As a project, we learned how to create a school website and as a idea to raise money for curriculum, supplies and hopefully a field trip or two. We’re in NC and also considered a private school.

We thought of an idea to sell Fairy Gardens that we personally make and accept donations on our website. Am I breaking any laws by not being registered as a business or non profit? 100% of profits will be spent on the school, but it goes to my own PayPal account and I state on the website that receipts for the donation being spent on the school and states that the donations are not tax deductible.

It dawned on me that it might not be allowed to do this without some kind of permit. I’m not sure though because I would be allowed to make fairy gardens and sell at a yard sale, so is it different if I sold them online?

Also, can I be a non-profit since I homeschool the children of two families and not just my own? I would greatly appreciate your feedback on this and thank you so much for all of the knowledgeable information you’ve shared on your site!

Best wishes,

April in North Carolina

 

 

April,
You and the other family are not a nonprofit organization, even if North Carolina classifies your homeschool as a private school. Private school  only means you are not funded with public (i.e. government) funds. It does not make you or your business a nonprofit organization. (BTW, some private schools are for-profit businesses.)

In order to be a tax exempt nonprofit, the IRS says you must be operated and organized as a nonprofit.

A tax exempt nonprofit organization “must not be organized or operated for the benefit of private interests” (Source: https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-section-501c3-organizations).

So benefiting only you and the other family is “private interests” and not serving a public good, therefore you cannot be a nonprofit organization with only two families getting all the benefits.

Your fairy garden business is NOT a nonprofit. It is a business, probably a micro business. Stop calling your sales “donations.” They are simply sales of products (fairy gardens in your case) by a business.

You probably need to register in North Carolina as a business and probably get a vendors license to collect and pay sales tax.
Better start googling “Start a small business in North Carolina.”

 

My books Micro Business for Teens could help your children start this as their business (not yours) and learn a lot too!

 

 

 

 

 

 

Additionally, your comment about selling your products at a yard sale is not quite correct. You can sell fairy gardens at a yard sale, but then you’re running a business and the profit is taxable. In yard sales, you are generally selling household items you bought over many years and used personally and selling them for less than you paid for them. But that’s not true for your fairy gardens. You did not use them personally and you are selling them at a profit, so it’s a business and you should register it and apply for a vendor’s license.

 

Carol Topp, CPA

A homeschool group is using free Paypal. Is that legit?

Hi Carol!

Our small homeschool group set up our business account with PayPal to collect payments from our families.

A friend/homeschool leader said we should accept money through the “friends and family” option on PayPal and avoid the PayPal fees. I didn’t even realize this was an option for a business account, but it is. I’m not sure if that’s legit. 

What scenario would I ever accept money via friends and family?

Thanks so much for your service to us homeschooling mamas!

-V, a homeschool group leader

 

Dear V,

Since you are accepting payment for rendering a service, you cannot avoid the PayPal fee.

To use the “friends and family” option would be deceitful.That option is for true transfers of money among friends, but not if your group is getting paid for rendering a service.

No one likes paying fees, but PayPal is doing your organization a service (processing credit card or debit card payments) and you should expect to pay for that service. You may have to increase your fees to the families a bit to cover the extra expense, but paying the Paypal fees is the correct, proper and legal way to run your homeschool group.

Carol Topp, CPA

HomechoolCPA.com

 

Have more questions about managing the money in your homeschool group? My book Money Management in a Homeschool Organization may be just what you need!

Money Management for Homeschool Organizations

Does your homeschool group manage their money well? Do you have a budget and know where the money is spent? Do you know how to prevent fraud? This 115 page book will help you to open a checking account, establish a budget, prevent mistakes and fraud, use software to keep the books, prepare a financial statement and hire workers. Sample forms and examples of financial statements in clear English are provided.


Paperback $9.95

Ebook(pdf) $3.99

Kindle $3.99

 

 

Should my homeschool group tithe?

If we want to tithe on our income (from registration fees and donations) are there any restrictions, red tape, or regulations we should know about? Do you have advice or thoughts on tithing by a 501(c)(3) tax exempt organization?

Homeschool leader in Idaho

 

The only restrictions is that the purpose of recipient of your tithe must be in line with your exempt purposes (charitable, educational and religious for this particular group).

So you shouldn’t give any part of your tithe to a for-profit business or to a nonprofit whose mission is outside of your purpose as you indicated to the IRS when you applied for 501(c)(3) tax exempt status (say an animal shelter).

Most 501(c)(3)s do not tithe because they consider themselves as recipients or stewards of donations for their specific mission. But some organizations do tithe. My church, for example, budgets 13% of our income to missions. We consider that part of a tithe.

From a Biblical perspective, it’s unclear if nonprofits should tithe.

Here’s a blog post from a pro-life group LifeMatters Worldwide with food for thought:

Should your ministry give a portion of your budget to the Lord’s work? That sounds good, but isn’t 100 percent of your budget already dedicated to advancing the Kingdom to your particular target audience? If you believe that a nonprofit organization should give because God will bless you in a special way, why stop at 10 percent?

Your board should discuss these questions:

  • If you choose to tithe, where would you direct the funds?
  • Would you give to a church? That could be problematic.
  • Would you only give to other similar agencies? Donors who give to your nonprofit expect that 100 percent of their gift will be used to support your mission.
  • What if you choose an organization that your donors don’t believe in?
  • Would they quit supporting you if they knew that a portion of their gift ultimately supported another organization that they don’t like? Their reason for not liking the other organization doesn’t have to be doctrinal or philosophical. Maybe they don’t like the director, or maybe they simply aren’t interested in that particular cause.

The blog post writer concludes with this:

When a nonprofit decides to give to other nonprofits, in a sense they become mutual fund managers. You are deciding for your donors how to spend a portion of their gift that is not directly connected to your ministry. As a donor, I’m writing a check because I want to support the impact your organization is making. If I wanted to support the organization that you choose for me, I would give to them directly.

The biblical instructions about tithing and giving primarily apply to individuals. Business owners may choose to tithe their income, but a nonprofit ministry should not view giving from the same perspective.

There is one critical difference — nonprofit organizations don’t earn income, you are merely stewards of the gifts someone has entrusted to your care to accomplish your mission. When you look at nonprofit tithing from a donor’s perspective, it doesn’t make sense to give something away that isn’t really yours.

I think that will give your board something to discuss!

Carol Topp, CPA

 

Carol’s book Money Management in a Homeschool Organization  will help your homeschool organization create a budget and live by it!

 

How long do I need to keep these homeschool group records?

From the I Am a Homeschool Group Leader Facebook group (if you’re not a member yet request to join us. We’d love to have you!)

 

How does your group handle old financial records? What do you keep, what gets tossed and when?

When I began as treasurer, I received tons of files, receipts, bank statements, old insurance policies, order forms and the like. Our group is 30 years old. It’s a lot of stuff! Don’t want to toss anything that’s needed, but thinking that much of this is not necessary anymore.

Julie

 

I found some helpful lists of what to keep and for how long:

Document Retention for US Nonprofits: A Simple Guide

Document Retention Policies for Nonprofits

Both of these lists are for large nonprofits with employees, buildings, etc. so the lists are crazy long and overly detailed for most homeschool groups.

So I culled it down to this:

Keep these records permanently

  • Articles of Incorporation
  • Determination Letter from the IRS
  • IRS Tax Exempt Application Form 1023/1023-EZ
  • Employer Identification Number (EIN) from the IRS
  • Bylaws
  • IRS Information Returns, Form 990/990-EZ or 990-N
  • State Information returns or annual reports

Keep for 7 years

  • Financial statements (year-end)
  • Canceled checks
  • Bank Statements
  • Leases (5 years after lease ends)
  • Background checks
  • 1099-MISC  given to Independent Contractors
  • Employment Tax records (Form 941, W-2s etc)
  • Payroll records (although one list said to keep these permanently!)

Keep for 3-5 Years

  • Minutes of board meetings (although one list said to keep these permanently!)
  • Invoices
  • Reimbursements
  • Receipts of expenses
  • Insurance  policies

 

Where do you store these documents and papers? Most of the documents will probably be stored at the Treasurer’s and Secretary’s homes.

But the documents to be kept permanently should be stored in a board members’ binders and passed down to future board members. Each board member should have a copy of the important “Keep permanently” documents.

I have created a Homeschool Organization Board Manual. It is a template to create a board member binder. It has:

  • A list of important documents to keep in your binder
  • Section dividers so you can organize the important papers
  • Tools to help you run your meetings smoothly including
  • A sample agenda that you can use over and over again
  • A calendar of board meetings

Can homeschoolers use 529 plans? Maybe!

Congress decided to expand 529 savings plans to be used for K-12 expenses in the Tax Cut and Jobs Act or 2017. 529 plans were originally set up to save for college. The earnings on the savings is tax free. But they specifically excluded homeschool expenses from using 529 funds.

That seemed unfair to a lot of homeschoolers.

But there may be a way for homeschoolers to use their 529 savings accounts for some K-12 expenses.

The Tax Cut and Jobs Act or 2017 says this:

the term ‘qualified higher education expense’ shall include a reference to expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.”. (emphasis added)

There are 2 conditions for you to use 529 funds for K-12 expenses:

1) the costs must be for tuition and

2) the institution the family pays must be “a public, private, or religious school”

Some homeschool students take classes from private schools (locally or online). The tuition payments to these schools can use 529 funds.

But the cost of books, supplies, equipment, and payments to organizations that are not schools cannot use 529 funds.

Be careful that the tuition payments are going to a public, private, or religious school. In my experience most homeschool programs (co-ops, tutorials, etc) are NOT schools.

Homeschool parents should check with the program that they are paying tuition to to determine if it is a school according to their state’s definition.

If you have any concern about their status as a school, then do not use 529 funds to pay for the tuition. Withdrawals from a 529 fund that are not “qualified” (i.e. tuition paid to a public, private, or religious school) then you pay income tax and a penalty of 10% on the withdrawn earnings. Ouch!

Carol Topp, CPA