Do I Have to Become a Business? Can I Just "Do Nothing?"
Nope. The end.
Haha just kidding. Here's the longer answer:
I understand. You're running a program out of the goodness of your heart. Perhaps you consider it a ministry. You're not running a business. Well...actually you probably are. Allow me to explain.
If you are providing services in exchange for money, you are operating a business. Most of the time, this is pretty straightforward. The only gray area might be if you are collecting exact money to pay for an occasional event...more on that later.
Back to you providing services in exchange for money. It's a business...
-->Even if you charge $10/year per family to pay the church rent and you
coordinate a volunteer run co-op (and you are also a volunteer).
-->Even if you only collect money for supplies and then purchase/provide supplies to
program volunteers for a co-op you coordinate as a volunteer.
-->Even if you only collect money for classes and then give 100% of that money to the
class teachers (which is a whole different issue--see this post).
-->Even if you collect money and use 100% for supplies, rent, and insurance and there's
nothing left at the end of the year.
-->Even if your group ends the year with a deficit and you personally cover the loss.
So the big, bad IRS considers you a business. What does that mean? If you don't make any "profit," do you still have to form legally?? Arg. Yes. Legally, you are obligated to report any/all funds as business income on your personal tax return (unless you want to organize more formally) even if there is no profit. You can also report all expenses, which may prove to be a wash-but that's not the point.
If you truly are small, forming a legitimate business doesn't have to be nearly as complex as a larger operation. You may even be considered a "tiny group." Visit Carol Topp's website for lots of information and resources on this topic.
If you're not small (over $5,000 in annual revenue--before expenses) and you're avoiding this process for any reason, please don't wait. I recently heard from a homeschool leader who put off this process entirely and paid the price (literally) two years later when she received a 1099 from a payment processor (PayPal). Her personal tax obligation was $16,000 after fees and penalties. She was not operating as a business (she was operating as a "ministry") and had not planned on a bill from the IRS. Yuck!
The only exception I mentioned above would be similar to a group of friends going out to dinner and one person paying for it, then everyone giving that person cash for his/her portion of the check. If this was an occasional thing, it's not considered a business. If you coordinate a field trip and you pay for it personally, but then collect the funds for each family, this may not be enough to consider this a business. However, the more formal it gets, the more likely it is to be viewed that way. If you keep good records, YOU coordinate all of the activities, YOU take in the money on a regular basis... hmmm all that makes it more formal. If you want to avoid this, make efforts to have parents pay for their participation directly whenever possible. Have parents bring their own supplies and books. But be careful about having parents pay teachers directly. That's generally a no-no for other reasons.
Are you exhausted yet? I tell clients regularly that if you want to be compliant with all the various regulations out there, it's either Go BIG or Go Home...literally. Stay home-based and small with no money changing hands, or you might as well go all the way...incorporate, get a website, become a 501c3...all the things.
Being a business can be somewhat of an undertaking at first. You can do it! There are lots of resources available to help. I offer consultations and services to walk with you in the process and Carol Topp also has very helpful books and webinars. Keep up the good work!
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