LindaS27 (Colorado)
Posts: 236
Posts: 236
Posted:
Just wondering what experience others have had on filing their tax returns?
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Tax Returns 1120 or 1120-H ?
Started by LindaS27 • 8 replies • 1616 views
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TimB4 (Tennessee)
Posts: 21,062
Posts: 21,062
Posted:
Quote:
Posted By LindaS27 on 08/25/2016 2:19 AM
Just wondering what experience others have had on filing their tax returns?
Just wondering what experience others have had on filing their tax returns?
The choice to file 1120 or 1120-H will depend on the amount of taxable income the Association has.
As I understand it, filing 1120-H, you are allowed to exclude all assessments. However, filing 1120 you have more deduction possibilities.
I believe that most Associations file 1120-H
LindaS27 (Colorado)
Posts: 236
Posts: 236
Posted:
I was just wondering if anyone here had a bad experience filing Form 1120?
Our MC bookkeeper reported that "our Tax Returns were not filed on the appropriate form resulting in a large payment due.
She suggested the board consider filing an amended return. The board approved doing so.
I've inquired of the board which tax forms were filed for the year in question - but the board president makes a real effort to deny me any kind of information at all.
I'm quite sure that the CPA filed Form 1120-H which would be the proper form to use.
Filing Form 1120 would mean that the HOA is no longer a homeowners association and would lose all the benefits afforded by 1120-H.
The HOA would be subject to the several distinct disadvantages inherent in filing Form 1120 which carries considerable tax risk.
Any feedback?
Our MC bookkeeper reported that "our Tax Returns were not filed on the appropriate form resulting in a large payment due.
She suggested the board consider filing an amended return. The board approved doing so.
I've inquired of the board which tax forms were filed for the year in question - but the board president makes a real effort to deny me any kind of information at all.
I'm quite sure that the CPA filed Form 1120-H which would be the proper form to use.
Filing Form 1120 would mean that the HOA is no longer a homeowners association and would lose all the benefits afforded by 1120-H.
The HOA would be subject to the several distinct disadvantages inherent in filing Form 1120 which carries considerable tax risk.
Any feedback?
RichardP13 (California)
Posts: 3,868
Posts: 3,868
Posted:
Quote:
Posted By LindaS27 on 08/28/2016 11:43 AM
I was just wondering if anyone here had a bad experience filing Form 1120?
Our MC bookkeeper reported that "our Tax Returns were not filed on the appropriate form resulting in a large payment due.
She suggested the board consider filing an amended return. The board approved doing so.
I've inquired of the board which tax forms were filed for the year in question - but the board president makes a real effort to deny me any kind of information at all.
I'm quite sure that the CPA filed Form 1120-H which would be the proper form to use.
Filing Form 1120 would mean that the HOA is no longer a homeowners association and would lose all the benefits afforded by 1120-H.
The HOA would be subject to the several distinct disadvantages inherent in filing Form 1120 which carries considerable tax risk.
Any feedback?
I was just wondering if anyone here had a bad experience filing Form 1120?
Our MC bookkeeper reported that "our Tax Returns were not filed on the appropriate form resulting in a large payment due.
She suggested the board consider filing an amended return. The board approved doing so.
I've inquired of the board which tax forms were filed for the year in question - but the board president makes a real effort to deny me any kind of information at all.
I'm quite sure that the CPA filed Form 1120-H which would be the proper form to use.
Filing Form 1120 would mean that the HOA is no longer a homeowners association and would lose all the benefits afforded by 1120-H.
The HOA would be subject to the several distinct disadvantages inherent in filing Form 1120 which carries considerable tax risk.
Any feedback?
Based on what I know and have seen, you need to file 1120-H.
TimB4 (Tennessee)
Posts: 21,062
Posts: 21,062
Posted:
Quote:
Posted By LindaS27 on 08/28/2016 11:43 AM
Filing Form 1120 would mean that the HOA is no longer a homeowners association and would lose all the benefits afforded by 1120-H.
The HOA would be subject to the several distinct disadvantages inherent in filing Form 1120 which carries considerable tax risk.
Filing Form 1120 would mean that the HOA is no longer a homeowners association and would lose all the benefits afforded by 1120-H.
The HOA would be subject to the several distinct disadvantages inherent in filing Form 1120 which carries considerable tax risk.
The Association has the option of filing 1120 or 1120-H each year.
Filing 1120 does not mean the Association is no longer an HOA. It simply means that the HOA elected to file as any other corporation without benefits allotted to those who file 1120-H.
Some Associations do utilize form 1120.
LindaS27 (Colorado)
Posts: 236
Posts: 236
Posted:
typo --
No longer TREATED as an HOA.
No longer TREATED as an HOA.
PitA
Posts: 1,416
Posts: 1,416
Posted:
If y'all have non-exempt greater then $100 against which you can apply deductions 1120 may be a better option.
eg. activities/social committee accepts 'donations' for events - non exempt income
using 1120 one may offset said income with the cost of the event
clubhouse
pool rental
fundraisers
eg. activities/social committee accepts 'donations' for events - non exempt income
using 1120 one may offset said income with the cost of the event
clubhouse
pool rental
fundraisers
ArtT5 (Illinois)
Posts: 84
Posts: 84
Posted:
The first question is whether you meet the requirements to file Form 1120-H. Most HOAs meet these requirements, but this is not automatic so someone has to check.
If you qualify to use Form 1120-H, you can, as Tim says, elect each year which form to file. Conceivably an association that finds one form advantageous this year could save money by switching to the other next year, and then switch back in a still later year.
Normally, though, it's best to file Form 1120-H, even if it appears you can save a little on taxes by filing Form 1120. The main benefit of filing Form 1120-H is eliminating any question as to whether any excess of assessments collected over expenditures will be taxable. There are circumstances where a Form 1120 association can collect more than it spends without having to pay tax on the excess, but it's a complicated issue with gray areas. Most of the information on the internet about using Rev. Rul. 70-604 for this purpose is inaccurate.
The tax rate on a Form 1120-H association, after the $100 exemption, is 30%. By contrast, a Form 1120 association pays graduated rates beginning at 15%. We sometimes see the recommendation to take advantage of this 15% rate by filing Form 1120 if an association has more than a small amount of taxable income, but the advice overlooks the possibility that the same organization that has $1,500 of taxable income on Form 1120-H could have $15,000 of taxable income on Form 1120. The bottom line is you should file Form 1120-H, assuming you qualify, unless the tax savings from filing Form 1120 are substantial, and you're working with a tax pro who understands the issue concerning assessment revenue being potentially treated as taxable income when filing Form 1120.
If you qualify to use Form 1120-H, you can, as Tim says, elect each year which form to file. Conceivably an association that finds one form advantageous this year could save money by switching to the other next year, and then switch back in a still later year.
Normally, though, it's best to file Form 1120-H, even if it appears you can save a little on taxes by filing Form 1120. The main benefit of filing Form 1120-H is eliminating any question as to whether any excess of assessments collected over expenditures will be taxable. There are circumstances where a Form 1120 association can collect more than it spends without having to pay tax on the excess, but it's a complicated issue with gray areas. Most of the information on the internet about using Rev. Rul. 70-604 for this purpose is inaccurate.
The tax rate on a Form 1120-H association, after the $100 exemption, is 30%. By contrast, a Form 1120 association pays graduated rates beginning at 15%. We sometimes see the recommendation to take advantage of this 15% rate by filing Form 1120 if an association has more than a small amount of taxable income, but the advice overlooks the possibility that the same organization that has $1,500 of taxable income on Form 1120-H could have $15,000 of taxable income on Form 1120. The bottom line is you should file Form 1120-H, assuming you qualify, unless the tax savings from filing Form 1120 are substantial, and you're working with a tax pro who understands the issue concerning assessment revenue being potentially treated as taxable income when filing Form 1120.
LindaS27 (Colorado)
Posts: 236
Posts: 236
Posted:
Art - Good explanation!
It is almost always better to file Form 1120-H. There are enormous tax risks inherent in filing Form 1120.
The association needs to start planning the first day of the tax year. Most HOAs simply will not exert the effort to do everything necessary to safely file Form 1120. By the time the tax return is ready to be filed, it is too late to find out that you did not follow the strict guidelines the IRS requires.
Precise accounting procedures must be followed to the letter. I have not seen even one MC that could maintain proper accounting records, let alone meet the steps required by the various IRC Sections.
As Art stated, you need a tax pro for this.
It is almost always better to file Form 1120-H. There are enormous tax risks inherent in filing Form 1120.
The association needs to start planning the first day of the tax year. Most HOAs simply will not exert the effort to do everything necessary to safely file Form 1120. By the time the tax return is ready to be filed, it is too late to find out that you did not follow the strict guidelines the IRS requires.
Precise accounting procedures must be followed to the letter. I have not seen even one MC that could maintain proper accounting records, let alone meet the steps required by the various IRC Sections.
As Art stated, you need a tax pro for this.
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