It's everyone's favorite time of year again! No, winter is no picnic for those who aren't fans of cold weather. But the beginning of the year comes with more than just frigid temperatures and a lack of daylight. It also heralds in the menace known as tax season.
Let's face it – filing taxes is a daunting, confusing – yet necessary – task. Thankfully, we all have to do it, so there are a ton of resources available to help you figure out how to file your association's taxes. For the sake of this article, we'll be discussing federal taxes. State and property tax requirements for associations vary from state to state, so the best way to get specific information on those topics is consulting your Certified Public Accountant (CPA). Here, we'll go over some of the most frequently asked questions associations have regarding filing their federal returns.
Does My Community Association Have to File Taxes?
In most cases, yes, community associations, just like any other non-profit corporation, are required to file a corporate tax return each year on income other than that from member assessments - interest, fees charged to non-members, etc.
When is the Deadline for Filing?
Ok, fine, we have to file, but what is the deadline? Well, that depends on the end of your association's fiscal year. For personal income taxes, the April 15th deadline is ingrained in our minds (as Benjamin Franklin is alleged to have said, "In this world, nothing can be said to be certain except…"), but for associations, it may vary.
The deadline for filing income tax for most property owner associations is 45 days following the end of their fiscal year. That's April 15th for associations with a fiscal year of January 1st – December 31st. The important thing here is that if your original deadline doesn't provide you with enough time to prepare and file, there is no need to worry – you can always file an extension which will give you an extra six months to file. If you need to file an extension, your CPA can take care of this on your behalf.
What Form(s) Should Associations Use When Filing?
Now that we've (hopefully) convinced you that you have to file, you probably need to know which of the six thousand IRS forms to use. The majority of associations can choose between IRS Form 1120 or IRS Form 1120-H. So, what's the difference between the two? Does each have its advantages and disadvantages? Well, that is highly dependent on your association's finances.
Form 1120 is considered the "long form" of the two options and requires associations to provide a great deal of important, detailed information. That sounds tedious, right? So why would you choose this option? Associations using form 1120 pay a lower rate (15%) on the first $50,000 of net income. However, the disadvantage of using this form is that all of your association's net income becomes taxable, even funds that haven't been used at the end of the fiscal year. Additionally, your CPA will likely charge more to prepare this form.
The other option you have when filing your association's taxes is form 1120-H, or what is considered the "short form". The advantage of using this form is that you can exclude things like membership assessments from your association's gross income. However, according to the IRS, some requirements must be met to use Form 1120-H:
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