This article first appeared in The Informer Magazine, Spring 2014.
Homeschool leaders frequently wonder, “Is my group supposed to be paying taxes to the IRS?” They are unsure if their homeschool group is a business or a nonprofit organization and question whether being a nonprofit means they do not owe any taxes. Ultimately, homeschool leaders wonder what their involvement should be with the Internal Revenue Service (IRS).
Winter 2014
Homeschool Contact With The IRS
There are several situations when a homeschool organization should be in contact with the IRS:
Your homeschool group opens a checking account and needs a tax identification number.
Usually, the first contact a homeschool organization has with the IRS is getting an Employer Identification Number (EIN). Most banks now request an EIN when a group opens a checking account. An EIN is similar to a Social Security Number for a business or nonprofit organization. They are available from the IRS at no charge at ww.IRS.gov.
Your nonprofit homeschool organization brings in income of more than $5,000 in a year.
If your gross revenues are more than $5,000 a year and you have an educational, religious or charitable purpose, your organization should file an application (Form 1023) with the IRS for tax exempt status. Approval of tax exempt status by the IRS means that your group will not pay income tax on its financial surplus. Your organization is also eligible to receive tax deductible donations and may participate in fundraisers only open to 501(c)(3) organizations, such as Box Tops for Education.
If your organization’s gross revenues are under $5,000 a year, you are granted an exception from filing the application paperwork for 501(c)(3) status. You are automatically granted 501(c)(3) status without applying. In a nutshell, a homeschool group has three choices:
1. Stay under $5,000 annual gross revenues. Gross revenues includes all your income, even if it goes right back out.
2. File the application for 501(c)(3) tax exempt status (Form 1023).
3. Pay income tax on any annual surplus.
Your homeschool group pays a worker.
Your worker may be an independent contractor or an employee. Either way, there are forms to file with the IRS at the end of the calendar year (typically a 1099MISC or W-2, respectively). Additionally, there are employer taxes, such as Social Security or Medicare taxes, to pay in addition to employee wages.
Your group makes money from fund raisers, selling T-shirts and other merchandise, or selling advertising on your website.
Homeschool groups often make money from activities not related to homeschooling. The IRS calls income from these activities “unrelated business income (UBI)” and will tax the profit from these activities. Usually homeschool groups avoid the UBI tax by using one of the IRS exemptions which include using all volunteer labor, selling donated merchandise or having unrelated business income of less than $1,000 annually.
Your homeschool group is run as a for-profit business.
Most homeschool organizations are operated as nonprofit organizations governed by a board and bylaws, but increasingly some homeschool groups are for-profit businesses. The owner will need to have a tax number (called an Employer Identification Number or EIN) and file tax returns, such as the Form 1040 Schedule C Business Profit or Loss.
New IRS Filing Requirement for All Nonprofit Organizations
As of 2006, the IRS requires all nonprofit organizations (except churches) to begin filing an annual information return called a Form 990, even if they have not yet applied for tax exempt status or were granted tax exempt status automatically. The annual return is either Form 990, 990EZ or the new electronic postcard Form 990N. The Form 990N is for nonprofit organizations with annual gross revenues under $50,000. It is a very simple online form with only six questions. No financial information is given.
- A. Calendar year or tax year dates
- B. Check if gross revenue is $50,000 or less
- C. Name and address of the organization
- D. Employer Identification Number (EIN)
- E. Website
- F. One officer’s name and address
The Form 990N is filed online at http://epostcard.form990.org and is due due 4 1/2 months after the end of your fiscal year, so May 15 for groups that run on a calendar year. The difficulty in filing the Form 990N if you have not yet received 501(c)(3) tax exempt status is that your organization is not in the IRS database. You’ll have to call the IRS Customer Account Services at 1-877-829-5500 and be added to their database so you can begin filing the Form 990Ns. It typically takes 6 weeks to be added to the IRS database.
What Happens if Your Organization Doesn’t File the Form 990N
There is no penalty for late filing, but failure to file the Form 990N for three consecutive years means automatic revocation of tax exempt status. Lately, I have helped several homeschool organizations that did not file their 990Ns for several years (most did not know about the requirement) and had their tax exempt status automatically revoked. They now have to pay income tax for the years they were not tax exempt and apply for the tax exempt status to be reinstated.
If all this seems confusing or overwhelming, please visit HomeschoolCPA.com. On the blog page, type “990N” into the search box and read the blog posts about this IRS filing requirement. Additionally, my book The IRS and Your Homeschool Organization can give you details on applying for tax exempt status.
Carol Topp, CPA is an author, accountant and retired homeschool mom. She is the author of Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out, The IRS and Your Homeschool Organization and Money Management in a Homeschool Organization: A Guide for Treasurers. She shares her experience as a CPA, homeschool mom and co-op treasurer in her books, at homeschool conventions and on her podcast DollarsAndSenseShow.com. Carol offers consulting services to homeschool leaders. Contact her on her website HomeschoolCPA.com.