Just became a non-profit, How does this affect taxes

Started by CoreyA • 10 replies • 1759 views

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CoreyA (Illinois)
Posts: 13

Posted:

Our association just became non-profit this year. How does this affect filing taxes this year? I have heard a lot of things but I am not sure what is true and what is not.

Do we still file yearly?
Are the forms different? and is it fairly easy to file, so we do not have to pay someone to file for us?
Will we have to pay taxes if we have no income, except for a very small amount of interest?
What other changes are there, that I may not be thinking of?

Thank you

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Corey,

Just what do you mean by saying that your association JUST BECAME non-profit this year? Most HOAs are non-profit (or not-for-profit) corporations from the day they are "born."

Yes, all non-profit organizations have to file tax forms every year. Even 501(c)(3) charitable organizations.

SusanW1 (Michigan)
Posts: 5,202

Posted:

Corey may mean that the association incorporated this year.

What is your annual budget, Corey?

CoreyA (Illinois)
Posts: 13

Posted:

Yes, we JUST became a non profit. I recently found out that we have neve been a non profit. What are the major changes to the way we will have to file taxes?

Thank you

CoreyA (Illinois)
Posts: 13

Posted:

Yearly budget is about $65,000

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By CoreyA on 08/25/2011 1:39 PM
Yes, we JUST became a non profit. I recently found out that we have neve been a non profit. What are the major changes to the way we will have to file taxes?

Thank you

This is the same situation that I posted about our POA. The CC&R's said non-profit and the developer incorporated the association as a for-profit business and claimed it was his personal property.

If your declaration specifies that your association was to be a non-profit and the developer then formed the association in some other way, I think you have big problems depending upon state law.

In Arizona, for example, you cannot force a person to join a non-profit. Therefore, if the non-profit did not exist when a person bought property subject to the declaration he cannot be forced into joining an association created at a later date.

You need the advice of an attorney and you should have consulted one before you filed the articles of incorporation. But better late than never.

Forget the taxes. Worry about getting sued.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

Do we still file yearly?

Yes

Quote:

Are the forms different? and is it fairly easy to file, so we do not have to pay someone to file for us?

State: Probably
Federal: Probably not.

Pay someone this year, do it yourself next year based on the same paperwork.

Quote:

Will we have to pay taxes if we have no income, except for a very small amount of interest?

Probably not.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I don't understand where you say there was no income? A Non-Profit is to spend out as much as it brings in. What is subject to taxation is the amount leftover between. (Savings are allowed to a point). That is the simple break down. Keep in mind your not a "charitable non-profit". Which means if you have a community "yard sale" to raise money for the HOA, that money is subject to taxes. It's dues, late fees,fines(depends) and special assessments that are your income.

It's all very complicated...It's best to hire a professional for the first year to get you all through..

Former HOA President

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Corey,

I believe most HOAs file IRS Form 1120-H which is intended specifically for HOAs. This form is relatively simple compared to other forms for corporations. It is a 1-page form and I believe if you can fill out a Form 1040, you should be able to fill out the 1120-H. You must file each year and as long as you meet the specific income and expenditure tests (explained in the instructions that come with the form) you will likely have little or no income tax. Typically, income from assessments is tax-exempt.

You can download the form 1120-H from the IRS website. That will give you a better idea of what to expect.

SusanW1 (Michigan)
Posts: 5,202

Posted:

Corey - find a CPA that deals with homeowners associations to guide you along.

The "books" are kept the same in any corporation, it is the reporting mechanism that is different (forms to file)

The accountant will also help to be sure all other paperwork is filed with the state.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By MelissaP1 on 08/25/2011 10:58 PM
A Non-Profit is to spend out as much as it brings in.

A non-profit corporation can make a profit and is not required to spend all that it takes in. "Non-profit" means that the corporation cannot pay out dividends to its owners/members. It's not the corporation that is prohibited from profiting, it's the members who cannot profit. This is why non-profits can run profit-making thrift stores.

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