Email Mike Email
Financial
Feb 15, 2016

Tax Tips For Associations

Sponsored Content provided by Mike Stonestreet - Co-Owner/President, CAMS (Community Association Management Services)

Community associations are commonly referred to as homeowner associations, property owner associations, townhome associations, planned community associations or single-family neighborhoods. The vast majority of condominium and community associations are nonprofit corporations, but even they have to file taxes. There are some tips your community association should follow when it comes to tax time.
 
Nonprofit status for associations is established at the time the articles of incorporation are filed. Many believe that because an association is a nonprofit corporation it is not required to file income tax returns; however, both federal and state income tax returns are required and should be filed by March 15 of each year. Although most associations are nonprofits, they generally are not 501(c) charitable organizations, which is designated for charities such as schools and churches. This makes a difference.
 
Although taxes are assessed, condominium and community associations do receive an exemption on paying property taxes on common areas in North Carolina, provided certain requirements are met, such as the members of the association having the exclusive right to use the common areas. An exemption request must be made to the county or counties in which the common areas are located.
 
Unlike corporate entities, however, a condominium or community association may elect to file an 1120H (short form) or an 1120 itemized return. Which form you choose will depend on your year-end reconciliations and may change year to year. Your tax professional will advise the best form for your association in any given year. 
 
It is worth noting that condominium and community association assessments are not taxed. When filing an 1120H (short form), an association receives a specific income deduction of $100 and pays 30 percent federal and 7.5 percent state (for North Carolina) on non-assessment income, such as interest earned, clubhouse rental income, and the like. When filing an 1120 itemized return, a number of exemptions may be claimed at a lower federal tax rate of 15 percent.
 
The general membership of a condominium or community association should reconcile the association’s excess income over expenses on an annual basis, in accordance with IRS code 70-604. Typically, this is handled at the annual membership meeting or the yearly budget ratification meeting. The majority of associations choose to allocate any excess income to offset future operating expenses.
 
It’s important not to confuse year-end financial statements and reports with the filing of federal and state taxes. 
 
Many associations have one kind of financial year-end report completed by an accounting firm or CPA, in addition to filing taxes each year. The four types of financial reports associations select from are: a compilation; a compilation with disclosures; a review; or an audit. An audit is the most thorough report, as well as the most expensive, and it requires a significant amount of time as well as confirmations from third-party banks, attorneys and vendors.
 
Some associations’ governing documents dictate which type of year-end report is required and by whom. You should refer to your association’s governing documents to see if there are specific requirements for the year-end report. 
 
If your association does not elect to have any year-end financial reports provided by a third-party professional, a professional management company will recommend at a minimum that federal and state income taxes be prepared by an expert. This ensures that a third party reviews the financial reports of your association.
 
Remember that a copy of federal and state tax returns with accompanying documentation should be kept for a minimum of seven years.
 
Call us today if you want to know more about taxes and how a professional can ensure your association’s compliance.
 
Mike Stonestreet is a 26-year veteran of the professional HOA management industry who has achieved one of the highest education-based designations in the field, that of Professional Community Association Manager (PCAM). Community Association Management Services (CAMS) has been a leading association management company since its inception in 1991. CAMS is a trusted provider of management services for more than 265 associations throughout North Carolina, South Carolina and Georgia. To find out how CAMS can benefit your community, call 910-256-2021, email [email protected], or visit www.CAMSmgt.com.
 

Other Posts from Mike Stonestreet

Cams300pxx250pxblockadjune2018[1]
Ico insights

INSIGHTS

SPONSORS' CONTENT
Frankjolly liveoakprivatewealth

Roaring Market, Rocky Economy

Frank Jolley - Live Oak Private Wealth
Tonyharrington wrar300x300

Let’s #Rebuild Together

Tony Harrington - Cape Fear REALTORS®
Burrus rob headshot 300x300

Internal Auditors Can Serve A Key Role In Tough Times

Robert Burrus - Cameron School of Business - UNC-Wilmington

Trending News

Cape Fear Sports Medicine Joining EmergeOrtho

Staff Reports - Sep 25, 2020

South College Road Property For Sale After Honda Dealership's Move

Cece Nunn - Sep 24, 2020

NHC Commissioners Look To Vote Oct. 5 On Hospital Sale

Vicky Janowski - Sep 25, 2020

Third ReStore In New Hanover County Helps Expand Habitat Capabilities

Jenny Callison - Sep 24, 2020

State's $40M Relief Program Could Help Local Businesses

Christina Haley O'Neal - Sep 24, 2020

In The Current Issue

Biz Expo Keynote: Naudé Oversees NCino's Rapid Growth

CEO Pierre Naudé, who took the helm of Wilmington-based nCino in 2012, is a keynote speaker for this year's WilmingtonBiz Conference & Expo....


Attractions Get Phase 2.5 Boost

Local museums were finally able to reopen after nearly six months of closure as a result of COVID-19 restrictions. The news couldn’t come so...


Spotlighting This Year's MADE Awards

Several of this year’s MADE win­ners will participate in the upcoming virtual WilmingtonBiz Conference & Expo....

Book On Business

The 2020 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

2020 Leadership Accelerator: Virtual Workshops for Real Leaders
2019 Health Care Heroes
August 26, 2019 Power Breakfast: A Healthy Sale?
2019 WilmingtonBiz Expo Keynote Lunch - CEO, nCino, Pierre Naude`