Private School Tuition and Tax Deductions

[ken_sylvania]

The single most important question seems to be - is the benefit in any way connected to or conditioned upon you making the contribution. For instance, if the church holds a dinner where a meal is provided to any person who makes a contribution, the value of the meal must be deducted from the value of the contribution. If the church holds a dinner where there is no expectation that everyone will make a donation, but opportunity is offered that those who wish to do so can contribute, the meal is not likely to be considered to have been provided in exchange for the contribution, as the contribution has no bearing on whether an individual is welcome to partake of the meal.

[ken_sylvania]

If I remember correctly, our church issues a statement at the end of the year with the total of donations for the year, and it includes a similar statement to the bold above. For those using their donations to the church to pay their school tuition, this is not an accurate statement.

Is access to your church school conditioned on whether donations are made to the church?

For members, I assume it is not. As I said before, tuition payments by church members are not tracked. And the school would have no way of knowing, unless there is communication between the deacon and the board, how much a member is donating to the school through the church's fund, or if at all.

My guess is that if a family contributes nothing, it's going to become clear at some point. I assume that if there were genuine hardship, it would not be a problem. Non-member patrons are required to pay the stated tuition.

If schooling is provided to children of all members regardless of whether they contribute in the school offerings, how do you come to the conclusion that goods or services are being provided in exchange for the contribution? It sounds to me like they're being provided because of membership status, not because of contributions. Unless there is social pressure of some sort being brought to bear to ensure that each family pays the correct amount.

[ohio jones]

Non-member patrons are required to pay the stated tuition.

And therein lies the problem, since it establishes a dollar value for the education and runs the risk of making that amount nondeductible. If non-members would contribute to the offerings on the same voluntary basis as members, without paying a stated tuition, that could be one approach. Or if everyone paid tuition, even if there's a differential between members and non-members with members receiving more subsidy, the deductibility of the offering component would not be in question.

However, the whole issue is less critical than it used to be. Since the standard deduction was doubled in 2018 and indexed to inflation (and pending legislation would "temporarily" increase it further for at least two years), fewer than 10% of taxpayers actually itemize, down from about 25% in earlier years, and fewer than 8% claim a charitable deduction. Probably a good chunk of those are Mennos with children attending a church school, though.

[Ken]

Non-member patrons are required to pay the stated tuition.

And therein lies the problem, since it establishes a dollar value for the education and runs the risk of making that amount nondeductible. If non-members would contribute to the offerings on the same voluntary basis as members, without paying a stated tuition, that could be one approach. Or if everyone paid tuition, even if there's a differential between members and non-members with members receiving more subsidy, the deductibility of the offering component would not be in question.

However, the whole issue is less critical than it used to be. Since the standard deduction was doubled in 2018 and indexed to inflation (and pending legislation would "temporarily" increase it further for at least two years), fewer than 10% of taxpayers actually itemize, down from about 25% in earlier years, and fewer than 8% claim a charitable deduction. Probably a good chunk of those are Mennos with children attending a church school, though.

I think you still have that problem even if you don't have any outside members and "stated tuition"

There is still a value being received in the form of the education that your children are receiving and the IRS is going to expect that it be valued fairly and the value of that benefit be subtracted from any charitable contribution for which a tax deduction is being made. Setting a tuition amount for outsiders is one way to do that. But if you don't have that you'll still need to do it in some other fair and honest way.

The fact that some church schools don't do this and probably get away with it doesn't make it legitimate. Will you ever get audited over this issue? Doubtful. But it only takes one disgruntled person (former estranged member for example) to blow the whistle and get the IRS to start pulling on strings. And even if that never happens, it still doesn't make it legal.

[RZehr]

Non-member patrons are required to pay the stated tuition.

And therein lies the problem, since it establishes a dollar value for the education and runs the risk of making that amount nondeductible. If non-members would contribute to the offerings on the same voluntary basis as members, without paying a stated tuition, that could be one approach. Or if everyone paid tuition, even if there's a differential between members and non-members with members receiving more subsidy, the deductibility of the offering component would not be in question.

However, the whole issue is less critical than it used to be. Since the standard deduction was doubled in 2018 and indexed to inflation (and pending legislation would "temporarily" increase it further for at least two years), fewer than 10% of taxpayers actually itemize, down from about 25% in earlier years, and fewer than 8% claim a charitable deduction. Probably a good chunk of those are Mennos with children attending a church school, though.

I think you still have that problem even if you don't have any outside members and "stated tuition"

There is still a value being received in the form of the education that your children are receiving and the IRS is going to expect that it be valued fairly and the value of that benefit be subtracted from any charitable contribution for which a tax deduction is being made. Setting a tuition amount for outsiders is one way to do that. But if you don't have that you'll still need to do it in some other fair and honest way.

The fact that some church schools don't do this and probably get away with it doesn't make it legitimate. Will you ever get audited over this issue? Doubtful. But it only takes one disgruntled person (former estranged member for example) to blow the whistle and get the IRS to start pulling on strings. And even if that never happens, it still doesn't make it legal.

Sure it’s legitimate. Has been for decades too. A core reason for churches to exist is to teach. And schools fall under this mission.

[ken_sylvania]

Non-member patrons are required to pay the stated tuition.

And therein lies the problem, since it establishes a dollar value for the education and runs the risk of making that amount nondeductible. If non-members would contribute to the offerings on the same voluntary basis as members, without paying a stated tuition, that could be one approach. Or if everyone paid tuition, even if there's a differential between members and non-members with members receiving more subsidy, the deductibility of the offering component would not be in question.

However, the whole issue is less critical than it used to be. Since the standard deduction was doubled in 2018 and indexed to inflation (and pending legislation would "temporarily" increase it further for at least two years), fewer than 10% of taxpayers actually itemize, down from about 25% in earlier years, and fewer than 8% claim a charitable deduction. Probably a good chunk of those are Mennos with children attending a church school, though.

I disagree - I think this actually proves that free schooling is a perquisite of membership and not being provided in exchange for donations by the members.

It's awfully uncomfortable to disagree with Ohio Jones on a topic like this though as he's probably more likely to be correct than I am!

[Ken]

And therein lies the problem, since it establishes a dollar value for the education and runs the risk of making that amount nondeductible. If non-members would contribute to the offerings on the same voluntary basis as members, without paying a stated tuition, that could be one approach. Or if everyone paid tuition, even if there's a differential between members and non-members with members receiving more subsidy, the deductibility of the offering component would not be in question.

However, the whole issue is less critical than it used to be. Since the standard deduction was doubled in 2018 and indexed to inflation (and pending legislation would "temporarily" increase it further for at least two years), fewer than 10% of taxpayers actually itemize, down from about 25% in earlier years, and fewer than 8% claim a charitable deduction. Probably a good chunk of those are Mennos with children attending a church school, though.

I think you still have that problem even if you don't have any outside members and "stated tuition"

There is still a value being received in the form of the education that your children are receiving and the IRS is going to expect that it be valued fairly and the value of that benefit be subtracted from any charitable contribution for which a tax deduction is being made. Setting a tuition amount for outsiders is one way to do that. But if you don't have that you'll still need to do it in some other fair and honest way.

The fact that some church schools don't do this and probably get away with it doesn't make it legitimate. Will you ever get audited over this issue? Doubtful. But it only takes one disgruntled person (former estranged member for example) to blow the whistle and get the IRS to start pulling on strings. And even if that never happens, it still doesn't make it legal.

Sure it’s legitimate. Has been for decades too. A core reason for churches to exist is to teach. And schools fall under this mission.

Of course it is perfectly legitimate to run a church school.

What is shady is to donate $5000 to your church. Then deduct that entire $5000 from your taxes when part of your donation is paying for your children’s education.

[RZehr]

I think you still have that problem even if you don't have any outside members and "stated tuition"

There is still a value being received in the form of the education that your children are receiving and the IRS is going to expect that it be valued fairly and the value of that benefit be subtracted from any charitable contribution for which a tax deduction is being made. Setting a tuition amount for outsiders is one way to do that. But if you don't have that you'll still need to do it in some other fair and honest way.

The fact that some church schools don't do this and probably get away with it doesn't make it legitimate. Will you ever get audited over this issue? Doubtful. But it only takes one disgruntled person (former estranged member for example) to blow the whistle and get the IRS to start pulling on strings. And even if that never happens, it still doesn't make it legal.

Sure it’s legitimate. Has been for decades too. A core reason for churches to exist is to teach. And schools fall under this mission.

Of course it is perfectly legitimate to run a church school.

What is shady is to donate $5000 to your church. Then deduct that entire $5000 from your taxes when part of your donation is paying for your children’s education.

Assuming that $5,000 covers the cost of one student, is it also shady to donate only $1 and send your child to school there? Is it shady to donate $50k, and send your child to school there?
Or is it only shady if the donation amount is within the ballpark of the tuition? Or exact?
Or, can we not ever donate to the same church that operated a school that ones child attends?
What about if the donation to the church is $5,000 but the church sends 50% of its offerings to things besides running the school?

[Neto]

This is a thread for those attending a church that sponsors a school. Others may participate, but I'd like to hear from folks who have experience with this.

Under federal tax law, private school tuition isn’t tax deductible unless your child is attending a private school for special needs.

In our congregation, the school is funded in three ways.

1. School tuition assessed at a flat rate per patron family. This however is not tracked or enforced if someone is unable to pay, except for patrons that are not church members.
2. Monthly church offerings for the school fund.
3. Funds received from donors through the state's EITC program.

All large capital expenses (building and major improvements) are funded by the church's building fund.

I am aware that a sizeable amount of the tuition payments are made through the church's monthly school offering, rather than directly to the school, specifically to be able to write off the tuition as a tax deduction since it is given to the church, not the school.

Questions:

Does your church/school accept tuition payments in this way?
Is this illegal and/or unethical in your view? If so, would switching entirely to a donation basis solve the issue?
How likely is this practice to be discovered by tax authorities, and if so, what would the consequences be?

Gospel Haven Mennonite (our congregation) houses Gospel Haven Academy. Currently 13% of the offerings go to the school. The school also has an annual fund raiser, which is broadly supported by the congregation, and by the community, especially the parents who have children attending there. (I cannot remember the percentage of students that are children of members, but there is an appreciable number of students from other congregations.) Parents of the students also do pay tuition, but not to the level that it covers the expenses. To my understanding, GHA is run almost entirely as a classroom approach, that is, using the same model as is used by the public school system, and by the area Amish schools. (There may be some "self-paced" courses, but I think that approach has mostly been abandoned.)

I personally do not think that a person should evade federal tax in the manner you describe, and would consider it at least illegal in the sense of the "spirit of the law". Is it "fair" that parents are required pay into the local (public) school system, which they are not using? Probably not, but that is the law, and to intentionally bypass it does seem unethical to me.

Disclosure: When we returned the the States our two oldest children were High School age, and GHA was using that self-paced units approach, which we didn't like. So we sent them to an unaffiliated Christian school in a near by town, that had at least some group classroom courses. Our youngest was in grade school, and became involved in band, so because the Christian school did not offer that, we left him in the public school. I personally think that this is beneficial for the Christian development of the student, and am not happy with how the public schools have been 'left to the world' by "pulling our little missionaries out". I know that this is very controversial, and I do think this decision must be made prayerfully, in consideration of each unique child, and with vigilance. But there were also wild kids sent to both the Bible institute and to the Bible college that I attended, possibly as a sort of last ditch effort by the parents to 'straighten out' their children. I was personally challenged in my Christian life as I attended the public school, especially moving into Jr High and HS, but also in grade school. While I never 'lead a classmate to Christ' by having them 'pray the prayer', I know that I had an impact on some of my classmates - they have told me so (some even before they became actually believers).

[Ken]

Sure it’s legitimate. Has been for decades too. A core reason for churches to exist is to teach. And schools fall under this mission.

Of course it is perfectly legitimate to run a church school.

What is shady is to donate $5000 to your church. Then deduct that entire $5000 from your taxes when part of your donation is paying for your children’s education.

Assuming that $5,000 covers the cost of one student, is it also shady to donate only $1 and send your child to school there? Is it shady to donate $50k, and send your child to school there?
Or is it only shady if the donation amount is within the ballpark of the tuition? Or exact?
Or, can we not ever donate to the same church that operated a school that ones child attends?
What about if the donation to the church is $5,000 but the church sends 50% of its offerings to things besides running the school?

The law is exactly as depicted in the screen shot that I provided above.

"If you receive or expect to receive a financial or economic benefit as a result of making a contribution to a qualified organization, you can't deduct the part of the contribution that represents the value of the benefit you receive."

Do people do it anyway? I'm sure they do. How you determine the "value of the benefit that you receive" is something for your tax accountant to help you determine. I'm sure there is IRS guidance on how to do this. There is very little about the tax code that is ambiguous. I'm not interested enough to try and look it up.

People who attend a church school without contributing to the church or school aren't running afoul of any IRS guidelines. So the "shadiness" of doing that is more a question for the church to decide for itself.