Getting an EIN (Employer Identification Number)

June 18, 2009

Hi Carol,IRS

I am new to an existing homeschool co-op in VA. This co-op is more than 12-15 years old. We do not accept donations or need to; so far we have been handling the money through someone’s personal bank account. We receive fees from students and then pay teachers and reimburse them for materials, generally we break even each year (or can if we need to). There are regular Board meetings; I do not know if they have bylaws or take minutes but I do know they have a mission statement. The bottom line is that we want to be able to have a business checking account.

Can we get an EIN in order to open a checking account in our co-op name without incorporating and without having a state or federal annual filing requirement? I seem to remember that once you get an EIN (that I think is required for a business bank account), you are on the radar screen with the IRS and will need to file some sort of return.

Thanks so much

Nancy V in VA

Nancy,

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. Your group is doing things right by getting a checking account for their co-op instead of using a personal account.

On my website, www.HomeschoolCPA.com you can read my article Getting an EIN from the IRS.

Yes, you can get an EIN for banking purposes, but not have any other dealings with the IRS. You do not have to be a nonprofit corporation to obtain an EIN. If your organization does incorporate later, they will need to apply for a new EIN.

You will deal with the IRS if you become a 501(c)(3) tax exempt organization or pay workers. Since you mentioned that you are paying teachers, then you have required reporting to the IRS and to your state. You will have to pay payroll taxes (Social Security and Medicare) and file a W-2 if they are employees or file a 1099MISC if they are independent contractors. You should read this entry: “Paying co-op teachers is a sticky issue.”

Best of success to you!

Carol Topp, CPA

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Checking accounts and EINs for homeschool groups

June 4, 2009

Carol,

We have always had a checking account under a parent’s name. We were adding a name to our account this year when (the bank) informed us we can no longer do this and we need to have our own Tax ID number. Will we need to file returns with the IRS if we get a tax ID number?

I strongly discourage using a parent’s name on an organization’s checking account. The organization should have a checking account in its own name and use an Employer Identification Number (EIN), not an individual’s social security number.

Getting an EIN from the IRS does not necessarily mean your organization will have to report income to the IRS. If you are a small nonprofit organization with annual gross revenues under $5,000, there are usually no reporting requirements to the IRS at all.

Nonprofits have to start filing tax forms when they

  • bring in more than $5,000 a year
  • become a 501(c)(3) tax exempt organization
  • do public solicitations (i.e. door-to-door selling or fund raising)
  • pay workers either as employees or independent contractors

Money_thumbnailIf you hire and pay workers, your organization will use the EIN to file either 1099MISC or W-2 forms for each worker.

Read more about hiring and paying workers in my ebook, Money Management for Homeschool Organizations here

Carol Topp, CPA


How to register a legal and DBA name

March 2, 2009

Hi Carol,
We have just started a homeschooling co-op this year and have already received an EIN and opened a checking account. We are the R__ville Homeschool Educational Organization, which is quite a mouthful. We are known as “D____ Academy” and would like our members to be able to write checks out to D___ Academy and have that printed on our checks.
However, when we opened our account the bank would not allow us to put D___ Academy on the checking account even though our EIN paperwork showed that our DBA was D___ Academy. We were told we needed to file for a fictitious business name. I’ve tried to do some research as to what is required to do this for our county (as it appears that is who this is filed through). However, it has just confused me more and makes me wonder if there are other filings that we need to be doing such as a business license with the county or city.
I’m trying to determine if I am on the right track or if I’m just getting worried over nothing. I want to ensure we get things set up properly so we don’t have issues later.
Any advice or guidance you may have would be much appreciated.
Angela S

Angela,

Sorry it seemed so difficult to open a simple checking account.

The bank is correct.  You should file for a fictitious business name.  Here in Ohio it is done at the state level, not the county level.  You didn’t mention what state you are in, so I can’t help much.  I had to file a one page form with Ohio’s Secretary of State (and pay $50; Ohio is a high tax state!) to register the name HomeschoolCPA as belonging to me, Carol Topp, CPA. My checking account only says Carol Topp, CPA.  But now if someone writes a check to Homeschool CPA, I can deposit it into Carol Topp, CPA’s checking account.

There are at least 2 reasons for filing a DBA or fictitious name:

1. The citizens of your state are entitled to know who owns a business (or in your case, who runs a nonprofit  organization).  This protects us as consumers from getting ripped off.  A business owner cannot hide behind his business name.  Every business must be tied to a person or group of people.

2. The bank is also protecting its customers.  If someone found a check made out to D___ Academy, but wanted it to be deposited into Joe’s Bakery’s checking account, the bank would be suspicious that someone had stolen the D___ Academy check.

Unfortunately, the EIN is an IRS document and very easy to get, so the bank won’t put any merit in the EIN application.  The state DBA or fictitious name filing usually comes with an affidavit or some type of certificate (I got one from Ohio when I filed).

I understand your concern over other filings. It’s not easy figuring out what to do and what you might be missing.  In general you need a business license if your state requires it for your profession such as Barbers, Attorneys, Doctors, Dentists, Contractors, Insurance Brokers, Opticians, Veterinarians.  For example, as a CPA I am licensed in Ohio. Nonprofit groups do not usually need a business license.

Nonprofit organizations may need a vendors license if they are selling merchandise and then they may owe sales tax too.  It varies by each state. For example, here in Ohio we can sell merchandise 4 days a year and not have to collect sales tax. In Indiana, they can sell 30 days a year and not bother with collecting sales tax.

This website is very helpful for determining the nonprofit requirements by state: Hurwit Associates Nonprofit Library
Use the State-by-State Filings on the left column.

I hope that helps!
Carol Topp, CPA


Will getting an EIN put us on the IRS’s radar?

October 21, 2008

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. One group in Virginia is doing things right by getting a checking account for their homeschool co-op instead of using a personal account, but they wonder if this will mean more contact with the IRS.

Hi Carol,

I am new to an existing homeschool co-op in VA. Tomorrow morning we are meeting to discuss our options as it relates to becoming a more formal organization. I want to be able to advise them as to their options on this.

This co-op is more then 12-15 years old, we do not accept donations or need to, so far we have been handling the money through someone’s personal bank account, we receive fees from students and then pay teachers and reimburse them for materials, generally we break even each year (or can if we need to), there are regular Board meetings, I do not know if they have bylaws or take minutes but I do know they have a mission statement. The bottom line is that we want to be able to have a business checking account.

Can we get an EIN in order to open a checking account in our co-op name without incorporating and without having a state or federal annual filing requirement? I seem to remember that once you get an EIN (that I think is required for a business bank account), you are on the radar screen with the IRS and will need to file some sort of return.

Thanks so much

Nancy in VA

Nancy,

Yes, you can get an EIN for banking purposes, but not have any other dealings with your state or the IRS. Our homeschool co-op did it. We had an EIN and operated for 5 years with no contact from the state or IRS. We just recently decided to become a nonprofit corporation in our state. This chart might be helpful for your board Common Nonprofit Types
You will deal with the IRS if you become a 501c3 tax exempt organization or pay workers.

BTW, I will caution you that if you are paying teachers, then you do have some reporting to the IRS and your state government. You will have to pay payroll tax (Social Security and Medicare) and file a W-2 if they are employees or file a 1099MISC if they are independent contractors. You should read this blog entry: Paying co-op teachers is a sticky issue

Best of success to you!

Carol Topp, CPA