There’s no escaping the IRS when tax time rolls around, but high-quality HOA accounting software can streamline the process of getting right with the government.
Although revenue for non profits is usually tax exempt, homeowners associations are expected to file tax returns for each fiscal year. For a busy volunteer elected to be the HOA’s Treasurer, it can be stressful just thinking about tackling the job, much less actually doing it.
But, the IRS has its version of generosity for the responsible people who file HOA tax returns. HOAs are legally allowed to file Form 1120 or Form 1120-H. You can fill out both forms and then pay whichever one requires the lesser amount.
Consider it a discount even though it requires extra elbow grease to get.
The IRS also offers the gift of a deadline to keep us on our toes. Unless an extension is requested and granted, returns are due on the 15th day of the fourth month after the tax year ends.
HOA Accounting Software
For most people, preparing their own taxes is enough of a headache. Stepping into a position of trust and handling the financial needs of friends and neighbors has the potential to activate a fight, flight, or freeze response.
Despite all of the IRS’ codes and equations, it’s not rocket science. As long as you set aside time to focus on the task at hand and follow the steps, you and your HOA community can handle your obligations and go into the new year on a firm footing.
HOA accounting software can make balancing the books significantly easier. It can cost as little as $49 per month for a self-managed board, which is far less than the thousands of dollars a property management company might charge.
Software specifically geared to HOAs provides a set of tools that help organize and reconcile the year’s financial transactions. It also makes it easy to communicate with members and keep up with other important community data.
Whether you use HOA accounting software, other software designed for individuals or businesses, or old-fashioned paper ledgers, the to do list to close out the year follows the same pattern.
Ensure Invoices are Sent, Payments Collected
It makes no sense to close the books if there’s still business to be done for the current fiscal year. All invoices need to be sent out, and payments need to be collected to provide the most accurate end-of-the-year tally possible. Robust HOA accounting software provides secure and instant online payments and autopay for dues to make it easier to keep track of payments.
If invoices have already been sent but there’s been no action, it’s time to send reminders. This is also the time to identify payments that probably won’t be made, so you can include the write offs on your tax form.
When determining what debt is too expensive to track down, don’t put all the responsibility on the Treasurer. These debts should be presented before the HOA board and documented in the minutes.
When it comes to write offs, here are some key points:
- Be conservative.
- A larger bad debt allowance is better than overstating assets.
- If the money is collected later, record it as bad debt recovery income.
Handle Outstanding Financial Obligations
Of course, the end of the fiscal year is also time to make sure all of your association’s payments have been made. Be sure to take care of the people who take of your neighborhood, including:
- Other obligations
You will need to submit 1099s to your vendors and then file them with your taxes. To simplify this process, rely on HOA accounting software that automatically generates 1099 forms.
As a way of helping? your future self, or the Treasurer who takes the job after you step down, certify that all contact information is up to date. This step could prove helpful down the road in making sure payments go to the right people and places for the next fiscal year.
Perform a Physical Inventory Assessment
The end of one business year and the beginning of another present an opportunity to make a clear accounting of the supplies and other materials on hand. This isn’t just about housekeeping. The information should be included on your tax forms.
Keeping an accurate inventory aids in budgeting for the next fiscal year, so you know what’s available and what needs to be resupplied.
Reconcile Accounts, Back-Up Data
Mistakes are going to happen in any enterprise, and checks can get crossed in the mail. That’s why it’s important to make sure records are as accurate as possible. A Treasurer’s peace of mind comes from knowing there are ample funds on deposit to cover whatever bills arise.
Ideally, reconciliation with the bank happens each month, so it’s not just an issue at tax time. In addition, the process helps your HOA identify potential fraud or theft within the organization.
Performing a bank reconciliation requires an eye for detail and time set aside to focus on the problem at hand. Don’t let the details get overwhelming. Put your head down and push through.
Issues to look out for include:
- processing or late fees
- outstanding checks
- pending charges
- interest earned
Reconciliation can be achieved by comparing your records with paper printouts from the bank, but that increases the possibility of human error. Since HOA accounting software was made with HOAs in mind, it provides tools that can make it easier to go through the monthly and year-end reconciliation process.
Concerning employees, it’s important to make sure your monthly and year-end payroll expenses match before you file your HOA’s taxes. If payroll taxes are confusing, consider checking with a tax professional to ensure everything lines up the way it should.
PayHOA’s software connects your HOA’s bank statement with your account and provides current transaction information. There’s no need for tedious data entry. The information you need to analyze your finances is at your fingertips when you log in to your HOA accounting software.
No matter what system you employ for the reconciliation process, it’s a good idea to back up all files in case of emergencies.
Close the Books
Now, you’re ready to make sure Uncle Sam and the IRS get the paperwork they need. Remember, unless an extension is granted, returns are due on the 15th day of the fourth month after the tax year ends.
Tax time is prime time for planning out the following year’s budget. Run your budget vs actual report and balance sheet to get a 10,000-foot view of your end-of-the-year financial position. In addition, you can break down cost centers and consider possible changes to your HOA’s fees or dues.
When your taxes are filed and the books have been closed in the past, it’s time to move forward and see what the future brings for you and your neighbors.
PayHOA offers a self-managed HOA management software solution for HOAs of any size or managerial priorities. To find out if PayHOA fits all your HOA management needs, try our software free for 30 days.