Think you don’t need to file an annual tax return? Think again!
When meeting with a community association client (homeowner association, condo association, etc.), one of the first questions I ask is whether they’ve filed a tax return this year. Too often, the answer is no. Unfortunately, that’s the wrong answer. I bet that at least 35% of all HOAs and condo associations fail to file annual tax returns – especially self-managed communities. Whether your community is self-managed, or you work with a property management company, the CPAs at Bach, James, Mansour & Company can help you get these returns filed accurately and on-time.
All community associations need to file an annual tax return
This is one of the most overlooked association responsibilities. Most board members think that since their associations are non-profit organizations, no tax return needs to be filed. That is not correct. For tax purposes, Georgia and the IRS treat community associations like corporations, and require them to file federal and state tax returns. You may have to pay tax on net income not related to standard association activities.
While requirements vary based on the filing criteria that you choose, here are some examples of income streams that are normally not taxed (exempt) and taxable.
Association membership income is not taxable, including:
- HOA dues and assessments
- Owner fines, like $25 for a pine straw violation
- Interest on late payments, as well as late fees
- Resident clubhouse and facility rentals
Net outside income is generally taxable, including:
- Bank account interest and dividends
- Guest fees, such as a charge to non-resident for playing tennis or using the pool
- Non-resident clubhouse or facility rentals, minus costs
How do we file?
Tax returns are due March 15th, or 75 days after the close of your tax year if your association is not on a calendar year basis. With an extension, you have up to six extra months to file. I won’t get into the details here, but there are two possible IRS forms to use – 1120-H or 1120 – depending on some specific requirements. Your best option is to review your association’s situation with a qualified CPA, like Bach, James Mansour & Company, experienced in community association tax preparation.
What if we’ve never filed our HOA tax returns?
The sooner your association files back tax returns, the better. Just because previous boards may have failed to do this, that doesn’t absolve you of the responsibility. Technically, you need to file tax returns for every year that has been missed. Since you may not have records that far back, focus on where you have the information first and at least get something filed as soon as possible.
Don’t be the Board member who got the IRS involved in your association
If you hire a CPA with HOA and condo association experience like Bach, James, Mansour & Company, filing HOA tax returns (even back returns in most cases) is a pretty straightforward process that won’t break your budget. Get caught up, and make annual tax returns an agenda item for the first board meeting of every year. Please give me a call if you have specific questions.
Neal Bach, CPA