HomeschoolCPA has collected some commonly asked questions about non-profit status and organization from homeschool group leaders. I hope you find them helpful.Grab A Copy Click here
The IRS allows a small nonprofit organization the benefits of tax exemption without filing the Form 1023 if their annual gross revenue is normally not more than $5,000. (See Instructions for IRS Form 1023, page 1). $5,000 is a pretty small organization; it doesn't take much to bring in $5,000 a year. Note that the measure is gross revenue, meaning all your revenue, not just your profit. Read this article for more information.
Honorariums are considered income to the recipient. Your organization will have to give the teacher a form 1099MISC if you paid him or her $600 or more in a year. A copy of the 1099MISC form is also filed with the IRS. If you pay him or her less than $600, there nothing for your organization to report. The recipient is still supposed to report the honorarium income on his or her 1040 tax return as Misc Income.Grab A Copy Click here
Normally income earned from an activity unrelated to your mission is called Unrelated Business Income and subject to income tax by the IRS. Cleaning up the fairgrounds is not related to your mission of providing services to homeschooling families, so it is an unrelated business income. But the good news is that the IRS will allow this income to be tax exempt if the work is preformed by volunteers. You told me that your homeschool group families are all volunteers-no one is paid. So you do not have to pay taxes on this income.
I'm sure she does work hard and deserves some show of your appreciation, but volunteers are not paid. As soon as they are paid they are not a volunteer. They are (probably) an employee. Most small homeschool groups don't want to deal with W-2 forms, Social Security taxes, federal and state tax withholding, etc.. But you cannot avoid the paperwork by just saying she's an independent contractor. The IRS has a 20 factor test to determine independent contractor status. If your homeschool group is like most, your director won't pass the test for independent contractor status.
You should get an EIN (Employer Identification Number. See below) from the IRS. Then go back to the bank and open a new nonprofit checking account. Most banks offer nonprofit accounts for free. You should not have checks written to you personally. To the bank, it looks as if you are trying to deposit the organization's money into your personal account.Grab A Copy Click here
