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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Recording of Business Failure in the Homeschool Marketplace webinar

Yesterday I presented a webinar “Business Failure in the Homeschool Market that many of you (about 90!) attended.

 

Here’s the link to download the recording of the webinar.
The webinar lasted 2 hours because of all the questions asked, so it may take a few minutes to download.

 

Here’s a handout of the information I discussed.

 

We talked about
  • What triggers an IRS audit into worker classification
  • Factors to determine independent contractors or employee status
  • Consequences of misclassification and IRS programs to avoid penalties
  • What options are there for a homeschool co-op or academy
  • Are homeschool tutors or teachers at risk

I referenced my book Paying Workers in a Homeschool Organization which may be helpful to many of you.

 I also mentioned that I offer a Worker Classification determination service if you need help determining if your workers are independent contractors or employees.

I’m happy to help and relieve any anxiety you have about this confusing topic.

Carol Topp, CPA

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Webinar on business failure in the homeschool market

I am always saddened to hear about business failure in the homeschool market. I feel pain for the business owner, their employees and their customers.

  • How can this happen?
  • Can it be avoided?
  • What can a customer do if they have lost a lot of money?
  • What lessons can a homeschool business or homeschool co-op learn from others’ failures?
  • Are homeschool teachers and tutors at risk?

I’m going to answer all these questions and more during a live webinar hosted by Tammy Moore of Virtual Homeschool Group 

Webinar: Business Failures in the Homeschool Marketplace

 

Date: Saturday January 14, 2017

Time: 2:00 pm ET, 1:00 pm CT, 12 noon MT and 11:00 am PT. The webinar will last about 60 minutes.

Cost: Free

Topics:

  • For parents: How can parents avoid losing money?
  • For homeschool businesses and nonprofits: Could it happen to us?
  •  IRS audits, penalties and safe harbor provisions
  • Worker Classification: General guidelines and possible solutions
  • For homeschool teachers and tutors: Are you at risk?

Join the webinar  here

You’ll need to download the webinar application on your computer or mobile device before the webinar begins.

or phone in on Saturday January 14 at 2 pm ET/1 pm CT (only audio)

Call-in number: 571-392-7703

Participant PIN: 375 427 129 85

 

Here’s a handout I created.

I hope many of you will join me on Saturday January 14, 2017 to discuss this very important and timely issue.

Carol Topp, CPA

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Top 10 blog posts of 2016

 

Here is a round up of the top 10 most important blog posts from HomeschoolCPA in 2016.

 

Many of them have to do with paying workers in a homeschool organization, probably because I was asked a lot of questions about paying volunteers, giving discounts in stead of paying teachers and the difference between employees and independent contractors.

I also spent a lot of time in 2016 researching and writing Paying Workers in a Homeschool Organization and my blog posts reflect what I was learning.

Compensation to homeschool board members is taxable income

Paying Workers in a Homeschool Organization updated book is ready!

Are homeschool co-op tuition discounts taxable income? Probably!

Can you discount a homeschool co-op class in lieu of paying the teacher?

How you pay your homeschool teachers could affect the property tax exemption for your host church

Can a homeschool group just get together without having to report to the IRS?

Adding religious purpose to bylaws and Articles

Use Quickbooks online for free

Are discounts to homeschool board members taxable compensation?

How the IRS defines a school

I wonder what 2017 will bring in the world of homeschool organizations!

Sign up for my email list to be kept up to date on the questions homeschool leaders are asking.

P.S. Subscribers to my email list get freebies, discounts and special reports I share only with them.

Carol Topp, CPA
HomeschoolCPA.com

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Paying Workers in a Homeschool Organization updated book is ready!

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Some people compare writing a book to giving birth. I can understand that! Please welcome my 12th “child.” This has been quite a labor!

This latest book book, Paying Workers in a Homeschool Organization, is a major update to the 20 page ebook I released in 2009. Homeschooling has changed a lot in the past 7 years and homeschool leaders are asking a lot of questions about paying workers. The book grew from 20 to 130 pages!

Table of Contents

Chapter 1: Can You Pay a Volunteer?
Chapter 2: Paying Board Members and Other Leaders
Chapter 3: Employee or Independent Contractor? Worker Classification
Chapter 4: Guidelines for Hiring Independent Contractors
Chapter 5: Tax Forms for Independent Contractors
Chapter 6: Payroll Taxes for Employers
Chapter 7: Tax Forms for Employers
Chapter 8: Sample Independent Contractor Agreements
Chapter 9: Resources

Paying Workers in a Homeschool Organization,-2nd edition

$9.95 paperback
130 pages
Copyright 2017
ISBN 978-0-9909579-3-5

BuyPaperbackButton

 

The ebook version will available soon!

I hope you find the book helpful.

If it still leaves you with questions about your particular situation, I do offer a worker classification consultation. It is private, specific and will give you peace of mind.

Carol Topp, CPA

 

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What’s inside the new Paying Workers in a Homeschool Organization book?

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I’ve updated my book Paying Workers in a Homeschool Organization

It’s got a new cover. It’s grown from 20 to 130 pages, has an index, and a a bunch of sample agreements you can use with your independent contractors.
Here’s what you’ll find inside:

 

Table of Contents

Chapter 1: Can You Pay a Volunteer?

Chapter 2: Paying Board Members and Other Leaders

Chapter 3: Employee or Independent Contractor? Worker Classification

Chapter 4: Guidelines for Hiring Independent Contractors

Chapter 5: Tax Forms for Independent Contractors

Chapter 6: Payroll Taxes for Employers

Chapter 7: Tax Forms for Employers

Chapter 8: Sample Independent Contractor Agreements (I include 5 samples agreements: 3 for teachers, one for a speaker and one for other contractors like a bookkeeper)

Chapter 9: Resources

About the Author

Index

Does any of that sound helpful to your homeschool organization?
The book  in paperback will be available November 1.
The ebook version will be available in a few more weeks.
If you sign up for my email list, you will be sent a coupon code for 20% off the paperback price of $9.95.
Carol Topp, CPA

Paying Workers update will be available November 1

payingworkerscoveroutlined

I’m working hard at getting my book Paying Workers in a Homeschool Organization updated. It’s grown from a 20 page ebook, to a 130 page paperback (ebook version will be available soon as well).

Here’s the Table of Contents:

Chapter 1: Can You Pay a Volunteer?
Chapter 2: Paying Board Members and Other Leaders
Chapter 3: Employee or Independent Contractor? Worker Classification
Chapter 4: Guidelines for Hiring Independent Contractors
Chapter 5: Tax Forms for Independent Contractors
Chapter 6: Payroll Taxes for Employers
Chapter 7: Tax Forms for Employers
Chapter 8: Sample Independent Contractor Agreements
Chapter 9: Resources

 

The book is in the editing phase now and I hope it will be ready for sale by November 1st, 2016.

I know that can’t happen quickly enough for some of you! Just this week I received two emails from homeschool leaders asking if they are paying their teachers correctly.

I will also be offering a service to help assist homeschool leaders to make worker determinations. It will be a phone consultation followed up my helpful guidance on the next steps to take.

Be sure to sign up for my email list so you will be notified when the book is ready and when I will be offering worker determination consultations.

Carol Topp, CPA

Can I avoid the expense of hiring employees by being a 501c3?

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I run a homeschool tutorial in Texas as my small business. My tutors should be classified as employees according to the IRS rules. Due to the expenses and paperwork involved with hiring employees, I would like to set up a 501(C)(3).

I would like to hire you to help me with the process of setting up our local group as a 501(c)(3). Can you help me begin the process of setting up as a 501(c)(3)?

B in Texas

Dear B,
You should understand that having 501(c)(3) tax exempt status does NOT change the employer or payroll taxes you would have to pay.

501(c)(3) tax exempt status only grants nonprofit organizations tax exemption from federal income tax, not the payroll taxes. In other words, nonprofit tax exempt organizations still have to pay payroll taxes such as SS/Medicare, workers comp, unemployment insurance premiums.

Additionally, forming your business as a nonprofit organization means that you are no longer in control of the organization, nor does the money belong to you. The organization must be run by a board. The board can hire you as an employee, but they can also fire you.

Because you are converting a for-profit business to a nonprofit organization, you are not eligible to use the IRS’s short online Form 1023-EZ application form. Instead you will have to use the longer Form 1023 to apply for 501(c)(3) tax exempt status.

So you need to carefully consider your motives in forming a nonprofit, tax exempt organization. It should be done for reasons other than the expense and paperwork of hiring employees, because that burden will still exist as a 501(c)(3) tax exempt nonprofit organization.

Need help understanding the rules regarding paying workers in your homeschool organization? My book Paying Workers in a Homeschool Organization will explain the difference between employees and Independent Contractors and the necessary forms to file.

Carol Topp, CPA

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Things to Know Before You Sign an Independent Contractor Agreement

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Lots of homeschool organizations hire independent contractors (IC), usually as teachers in a class for homeschool students.

Here’s a great list of things to consider including in your IC agreements. It’s advice to the contractor, but the information is helpful to homeschool leaders hiring ICs, too. Don’t treat them like employees if they are paid like independent contractors.

For the full article, click here

11 Things to Know Before You Sign an Independent Contractor Agreement

(edited for bevity)

1. Intellectual property. If you are creating art, written work, computer programs or other creative works, then it may be an advantage to you to be an independent contractor. Generally, you own the copyright to works created as a contractor. But get it in writing!

2. Taxes. As a contractor, you’ll pay both halves of your Social Security and Medicare taxes. If you’re an employee, the employer pays half. This is a big chunk of pay to give up, so be sure you’re really a contractor before you sign. And be sure to set aside about 15%-25% of your pay to cover the taxes.

3. Control. If you perform services for someone and they control what you do and how you do it, you’re probably an employee. Independent contractors do the work where, when and how they choose. Nobody tells them what order to do the job in, what hours to work, or when they can take off. But, obviously, if you’re hired to teach a class, show up when the class is held. Duh!

4. Equipment and supplies. Independent contractors generally use their own equipment and supplies.

5. Assistants. If you are told who will assist you and can’t choose anyone you want to help you with your tasks, then you may be an employee. Independent contractors can usually hire their own assistants, or choose to work alone.

6. Evaluations. If you are evaluated about the process, details and methods of your work, you may be an employee. An independent contractor is evaluated on results — the end product, not the procedures used.

7. Training. If the company trains you on how they want the job done and the specific procedures to be used, then this is a good indication that you’re an employee. Training for independent contractors should be minimal — instruction on the overall results needed only.

8. Financial control. Pay for employees is normally done by the hour, day or week. Contractors are more frequently paid by the job, although are sometimes paid hourly. A contractor will have more opportunity to make a profit or take a loss than an employee.

9. Opportunity to work elsewhere. Contractors frequently advertise and are considered free to take work from other companies. Employees usually have to work for a single employer only.

10. Benefits. If the company provides insurance, sick days, vacation time, pension or other benefits, then you are likely an employee.

11. Indefinite time. If you are hired for an indefinite period of time, as opposed to working on a specific project or series of projects, then you may be an employee.

PayingWorkersCover

Need more help composing an independent contractor agreement? I’m updating my book, Paying Workers in a Homeschool Organization this summer. It will have sample IC agreements. If you can’t wait until it’s ready, the current ebook as a very usable agreement to get your started.

Carol Topp, CPA

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Can you discount a homeschool co-op class in lieu of paying the teacher?

Are volunteer teachers in a homeschool co-op allowed to get free or discounted classes? Do they need to claim the amount on their yearly income?

We have independent contractors  who work for our homeschool organization. Are they allowed to get discounted classes instead of getting paid their full amount of payment?

How do we do the paperwork properly?

Mr M.

 

Dear Mr M,

Volunteers are treated differently than your paid independent contractor teachers, so I will respond to each separately.

Volunteers

Volunteers may receive discounts or free classes from your homeschool organization. It is not included in their taxable income, if it is insignificant. It should be understood by everyone that the discount is in appreciation of the volunteer’s efforts and not payment for services. The volunteers should understand that discounts are not guaranteed.

Independent Contractors

Independent Contractors (IC) can receive discounts from their class fees, but the discount needs to be added to their compensation when reported on a 1099MISC. Even if the IC doesn’t receive an 1099MISC from you, the value of the discounted classes should be reported as income on his or her tax return. You may want to explain that in a  letter or include it in your written Independent Contractor agreement.

Can you discount a class in lieu of paying a teacher?

Homeschool organizations should not be offsetting an independent contractor’s payments for her services, which is taxable earned income, by the amount the contractor owes for her child to attend your co-op classes,  which is a personal  expense (i.e. not tax deductible).

I recommend that the teacher should be paid the full amount earned and in a separate transaction, she should pay her tuition to your co-op. I know it seems like extra work and more complicated, but netting or offsetting the two transactions could distort the total amount of compensation the IC needs to report to the IRS. It’s mixing taxable income with a non-tax-deductible personal expense.

Cover Money Mgmt HS OrgFor more information on paying workers and correctly recording transactions in an accounting system, you may find my book, Money Management in a Homeschool Organization, helpful.

 

Carol Topp, CPA