By Carol Topp, CPA
Homeschooling is expensive, and many homeschool families look for tax breaks or ways to earn money to pay for books and curriculum. Here are a few tips to help homeschool families understand money, taxes and homeschooling.
Tax Breaks for Homeschoolers
One of the most popular questions on my HomeschoolCPA.com website is, “Are there any tax breaks for homeschoolers?” Sorry, but there are no tax deductions or tax credits for homeschool expenses from the federal government. There may, however, be tax deductions from your state income tax, depending on what state you live in.
Arizona, Illinois, Iowa, Louisiana and Minnesota have educational tax credits for individuals. The tax credit is available to any public or private school student, so it is not unique to homeschoolers. Ohio is considering a bill to allow a property tax deduction for homeschooling expenses. Florida, Indiana, New Hampshire, Pennsylvania, and Rhode Island offer tax credits to businesses that sponsor a scholarship.
Home School Legal Defense Association has a detailed explanation of each of these state programs and tax credits. Visit HSLDA and search for “Education Tax Credits.”
Earning Money from Homeschooling
There are several ways to earn money by using the experience and skills gained from homeschooling. Teaching at a co-op (a gathering of homeschool families who share teaching responsibilities, usually by meeting once a week), tutoring, consulting, or selling curriculum are a few viable ideas.
Homeschool Co-Op Teacher
Lynn taught a class at her homeschool co-op and each parent paid her $45. She asked me, “As a teacher, how do I report this income on my income tax return?” Lynn should report all her income and expenses on a Schedule C (or the shorter form Schedule C-EZ) as part of her federal Form 1040. If Lynn made more than $400 in net income during the year, she will also have to file a Schedule SE to pay self-employment tax, which is the same as Social Security and Medicare taxes for self-employed people.
Teresa, a homeschool mom who teaches at a co-op where her own children take classes, was told by her co-op that they would just deduct her co-op tuition from her income as a teacher. Teresa’s co-op paid her as an independent contractor and this arrangement didn’t seem correct to her. Fortunately, she e-mailed me, asking, “Can I work off my co-op fees by teaching a class?” The answer is no, you cannot. The homeschool co-op should pay Teresa with a paycheck; then, as a separate transaction, Teresa should pay her fees to the co-op. It is important to separate the two transactions because of taxes. Being paid for teaching is earning taxable income. Paying tuition is a personal expense and not tax deductible. The two do not negate each other for tax purposes. It may seem like more work for the co-op’s treasurer to pay and collect money from the same person, but the separation is important for clarity and correct reporting of taxable income to Teresa.
Some homeschooling parents find they are qualified to become private tutors earning money from tutoring math, reading or foreign languages. For example, Cynthia teaches Spanish to individuals and small groups of students. She has also has been hired to teach Spanish at several homeschool co-ops. Katie tutors online with Tutor.com in the evenings after her children are in bed. She could earn more with face-to-face tutoring, but the online model fits better with her schedule.
Lee Binz (www.thehomescholar.com) has kept very busy with a consulting business that applies her expertise about homeschooling through high school. She offers her time to parents who need help with transcripts and college admissions. Similarly, Kathy Kuhl (www.learndifferently.com) created a consulting business from her own homeschooling experience. She works with struggling learners of all ages. My phone consultations are very popular with homeschool leaders. I advise homeschool groups about correctly utilizing their tax-exempt status, paying workers and running their groups successfully. It has been a great way for me to serve the homeschool community and earn money from my expertise.
The exhibit halls at homeschool conventions are packed with homeschooling vendors who have created books, curricula, and other products to offer to homeschool families. Many of these vendors are homeschooling families. Selling to the homeschool market is a fast-growing business.
As with any business venture, it is wise to learn all you can, create a business plan and get professional advice before launching a homeschool-based business. My book, Starting a Micro Business, while written for teenagers, has been used by many homeschool parents wishing to turn their knowledge of homeschooling into a viable business.
Fundraisers for Homeschoolers
Usually, homeschool groups such as a robotics team or drama club hold fundraisers, but a family can have a fundraiser if you follow a few guidelines. Here are some tips from fundraising expert, Jim Berigan, (www.topschoolfundraisers.com), a former Christian school principal and nonprofit director:
- Check with the fundraising organization first. Some fundraising organizations limit their programs to groups or organizations and will not allow an individual family to participate.
- Understand the tax implication of your fundraising income.
- Keep thorough records of everything you spend and everything you earn. This will make it much easier if you ever do have to go back and justify your actions.
Your income from the fundraiser will need to be reported on your tax return usually as Other Income on line 21 of the 1040. If you have expenses from the fundraiser (such as purchasing inventory, postage or mileage), then you should fill out a Schedule C Business Income as part of your Form 1040 tax return to deduct those expenses.
Donations for Homeschooling
Jena, a new homeschool parent asked me if she could receive donations to cover her homeschooling expenses. Jena can accept gifts from generous people, but they will not be tax deductible donations to the donor because Jena’s family is not a 501(c)(3) qualified charitable organization.
A qualified charity must serve a public good, not a private interest, so the IRS will not grant qualified charity status to an individual family, or to any organization that is formed solely to benefit the founder’s family. So, while a homeschool co-op may be eligible to receive tax-deductible donations (if it has 501(c)(3) qualified charity status), a family cannot receive tax deductible donations.
The best Jena can hope for is that friends and family might offer her gifts of books, curricula, or passes to places like zoos or museums. These gifts are not tax deductions for her generous friends, but neither does Jena report these gifts as income on her tax return.
To help cover the expense of homeschooling some families have researched tax deductions, earned money from their homeschool expertise, held fundraisers or even asked for gifts. I hope the tax implications of each of these ideas is clearer as you decide which may work for your family.
Carol Topp, CPA, is the author of Homeschool Co-Ops: How to Start Them, Run Them and Not Burn Out. Her most recent book is Money Management in a Homeschool Organization: A Guide for Treasurers. She hosts a podcast about money and homeschooling at www.dollarsandsenseshow.com. For more information on how your homeschool organization can become a 501(c)(3) qualified charity, contact Carol at her website www.homeschoolcpa.com. Originally published in The Old Schoolhouse Magazine March/April 2014