Any Tax Breaks for Homeschoolers?

February 13, 2009

Since tax season 2009 has officially launched, I’ll address a question I am frequently asked,handswithcash

Do homeschoolers get any tax breaks for their homeschooling expenses? Can a homeschool family deduct any of their homeschool expenses?

The simple answer is “No; there are no tax credits for homeschool expenses from the federal government.”

The longer answer is “Maybe, depending on what state you live in.”

Several states have an educational tax credit. Iowa, Arizona, Minnesota and Illinois all have some sort of  tax break for individuals. The credit is available to any public or private school student, so it is not unique to homeschoolers. Florida and Pennsylvania offer businesses tax credits if they sponsor a scholarship.

This document has a chart of education tax credits and deductions by state (updated November 2008). Scroll to page 6 to see the chart.

Home School Legal Defense Association has an explanation of some states’ tax breaks or credits:

Homeschoolers can get creative and think perhaps they can start a business or a nonprofit organization of their homeschool activities and then deduct their expenses.  Ann Zeise of A to Z Home’s Cool addresses these ideas:

You cannot contribute to your own child’s K12 education and get any tax deduction for it, no more than if you sent him to a private school and tried to write off the tuition.

Carol Topp, CPA

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Group over the $5K limit. What to do?

February 1, 2009

Hi Carol,

tn_texas2b I’m part of a homeschool organization that is considered an Unincorporated Non-Profit Association in the state of TX which by Texas law can not take in more than $5000. What should we do?

Thank you,

Sandy in TX

Dear Sandy,

I visited the State of Texas website to read about the Unincorporated Non-Profit Association laws. I could not find any restriction on the amount of money your organization can make.

I think I understand where you got the $5,000 threshold. The IRS does state in the instructions to Form 1023 (Application for Recognition of Exemption under 501c3) that:

The following organizations are excepted from the exemption application requirement: Churches, their integrated auxiliaries, and conventions or associations of churches; and an organization that is not a private foundation and the gross receipts of which in each taxable year are normally not more than $5,000.

So as long as your organization stays very small, you are tax exempt. If you make more than $5,000 gross revenues in a year, you need to file the Form 1023 to remain tax exempt with the IRS. So this is really an IRS/federal tax requirement, not a Texas requirement.

So you have several years over the $5,000 threshold. Your group has three choices:

  1. file the 1023 and become tax exempt
  2. pay taxes
  3. restructure your groups to stay under the $5,000 income limit.

Any of the options are workable. There are costs and benefits to all three options. Without knowing a lot more about your group, I cannot tell you which option is best for you.

Your group is not unique. Like many homeschool groups, you are finding that your organization is growing and doing more for homeschooling families. That’s wonderful, but then you can run into road blocks like the $5,000 income limits.

Carol Topp, CPA

Can a co-op refund fees to members?

November 23, 2008
A homeschool co-op treasurer in South Carolina asks if she can refund supply fees to the co-op’s members:
I am the treasurer for a mid-sized home school co-op. We currently have about 45 families. The co-op has been in existence for about 10 years and has always operated as an unincorporated organization with a checking account under the ss# of one of the board members.
Our co-op charges a set fee for each class which is passed on to the teachers (moms), and we also charge an additional supply fee if the teacher feels it is needed. I took over the books about 2 years ago and since that time we have been able to track expenses on a per class basis. We end up at the end of each year with a surplus. I am wondering if we can refund unused supply fees by class to the families who paid the fees initially. On your web site you state that surplus money should not be distributed. Does that apply in this case?
Also, I am going to talk to the board about getting a TIN for checking purposes. Do we use this same TIN to file 1099s at the end of the year?
Thanks for all of your great information!

Debi M in SC

Since your surplus is from supply fees and not general membership or tuition fees, I don’t see a problem doing a refund. But giving refunds makes more work for you as treasurer!

The prohibition against distributing a surplus is to avoid individual benefit or what the IRS calls “private benefit or inurement”. The purpose of a nonprofit (even an unincorporated nonprofit, such as yours) is to accomplish a mission, not to accumulate a profit. Naturally, the IRS forbids a group of people from setting up a nonprofit to make a profit, and then to split the surplus at the end of the year. That would be tax avoidance and abuse of nonprofit status.

I usually encourage homeschool groups to have a small surplus for emergencies, large purchases, future expenses, or to make appreciation gifts to volunteers or the place where you meet.

It’s a good idea to get a EIN (Employer Identification number) instead of using the board member’s SSN. You would use the EIN and the Co-op’s name on any 1099MISC forms you file.

I hope that heps!

Carol Topp, CPA

What to do with a surplus of cash?

November 17, 2008

A homeschool leader, Michele in Colorado, asks,

We will have less than $100 left in the check book. We have a Fed ID #. What do we do? What about next year?

You did the right thing by getting a tax ID number. I hope you also have a separate checking account in the group’s name. There isn’t really a lot to do except leave the $100 in the account to use for next year. If your group does not exist next year (or closes at some future date), donate the leftover money to a charity or another homeschool group. Or you can have a party for the entire group with the leftover money. It would not be proper to give the money back to the individual members.

If you have a lot of surplus cash, you need to investigate filing for 501c3 tax exempt status, so that your group can avoid paying income tax on your surplus.  Start by reading these articles on my website:

Do we need 501c3 status?

Are you ready for 501c3 Application?

Carol Topp, CPA

Can my individual homeschool have a fund raiser?

October 26, 2008

HomeschoolCPA has been asked this question twice lately,

Can we (an individual homeschool) be allowed to do fund raising similar to youth sports groups, scouts,etc?

What a good question. In general I say, Yes, you can participate in a fund raiser if the fund raising organization allows it. BUT, the profit you make is taxable income and you’ll need to report it on your tax return.

Another homeschooling mom e-mailed me with a similar question:

With 6 children needing school curriculum, we are coming up short in finances. We contacted a calendar company that said it would be permissible for us to sell calendars as a fund raiser for our homeschool. We accepted personal checks made out to our homeschool name (that we registered with the state school board, considered a non-profit private school). We do not have a checking account with our homeschool name on it. Therefore, we have no way to deposit them.

What is your advice to us? The checks amounted to $90. Is this method acceptable to continue as long as we pay taxes on it? Mrs. W.

Here’s what I told Mrs. W to do:

By selling calendars you actually were actually operating a small for-profit business. You are free to use the profit of the small business for anything you wish, in your case homeschool books and supplies. Since you didn’t mention what state you are in I cannot tell if your state requires business registration. Many do not require any type of registration if your are a sole proprietor using your own name. You may have to file a name registration with your Secretary of State to establish your business name.

To deposit these checks you’ll need to open a checking account in the homeschool’s name. You’ll have to get an EIN number from the IRS at (See the Q&A on my website for details You can then spend the money in the checking account on homeschool supplies and close it or keep a small amount in it until next year.

You should report the $90 as income on your tax return as either Other Income on line 21 of the 1040 or on Schedule C Business Income if you have expenses from the sale of the calendars (postage, mileage, etc…)

Quite a mess for a $90 fund raiser, huh? Before you try a fund raiser for you individual family homeschool make sure its worth the effort of getting a business name, EIN, and checking account. Maybe try having a garage sale or sell something to bring in income instead!

Carol Topp, CPA

Board, Bylaws and Budget

October 18, 2008

A homeschool leader is asking some excellent questions about writing bylaws, establishing a board and collecting money.

Dear Carol,
I am co-directing an established homeschool group and we are in the process of writing by-laws. My question is, is it okay to not allow members to have a vote pertaining to the decisions of the homeschool board? Can the by-laws be set up to allow suggestions and recommendations from the members at the approval of the board? Our concern is to protect the vision of the homeschool group. Also, is it legal to initially appoint a board without a vote and then fill vacancies at the discretion of the established board? When it comes to handling dues from the members are there guidelines that must be followed such as becoming a formal non-profit? Can we handle dues without needing to apply for non-profit status or 501c3?
Your website has been a tremendous help to us as well as your article in the Winter 2006-07 issue of The Old Schoolhouse. Thank-you for your time and ministry to homeschooler’s.
Misty M
You have asked several good questions. Your group is fortunate to have you as a co-director.

Yes, it is OK to not have members vote; I have been on several nonprofit boards that do not have members vote.

Yes, you can set up your bylaws to allow final approval of ideas to be a board responsibility. You may establish a practice of considering suggestions and recommendations; you may not need to formalize the practice in the bylaws.

Yes, you can appoint a board without a member vote. This is done quite frequently on nonprofit boards, especially fine arts boards (i.e., art museums, symphonies, ballets, etc). Many boards find their own members from interested members, volunteers or patrons.

You can accept dues without being a 501c3 or having nonprofit corporation status. If you have a large surplus you may wish to consider nonprofit incorporation to legally establish your group as a nonprofit. My co-op filed for nonprofit incorporation last year because we have been carrying a large cash surplus for several years. We didn’t want our state to think we are a for-profit business and charge us business income tax. These articles might be helpful:

Do We Need to Incorporate?
7 Great Reasons to Incorporate

As a guideline, your board should remember their fiduciary duty (duty of care and duty of loyalty) to manage the funds with the purpose/mission of the organization in mind and not for private gain or benefit.
The board’s job is

  • to provide for fiscal accountability,
  • approve the budget, and
  • formulate policies”

(from “Major Duties of Board of Directors),

In other words, think first of what is best for the organization.

I hope that helps!

Carol Topp, CPA