HOAs and townhouse and condo associations have both bookkeeping, budgeting, and accounting needs. Board members typically don’t have the time or skill set, and hiring a CPA to do all that would be quite expensive. So, who takes care of what, and when is it best to leverage HOA accounting services?
The most cost-effective approach to HOA bookkeeping and budgeting is to hire a property management company that offers these services. For example, at Hillcrest, we take care of the bookkeeping, budgeting, and financial statements for the properties we serve.
But HOAs also have a few complementary needs where having an accountant is important. We interviewed Rich Manietta, Certified Public Accountant (CPA) of Manietta Business Advisors in Naperville, IL for some insight on exactly what those needs are.
Your property management firm may do a great job all year ensuring your books are in order. But when it comes time for year-end tax returns, association boards commonly hire an HOA accounting firm. You may also find it helpful for the accountant to review your year-end financial statements. Here’s why…
Often association board members aren’t familiar income tax details, and therefore are not equipped to properly complete the income tax returns. At a high level, there are two types of income to report: exempt and non-exempt. There are also two types of tax returns that community associations can file: 1120-H Homeowner Association or Form 1120 Corporation. While the 1120-H is easier to file, since it is made for homeowner associations, it may not be the best choice for your association. An accountant can determine, based on the tax rates of each form and if there is ample non-exempt income, which method of filing most benefits your association.
Remember that bookkeepers are not accountants. If your property management provider offers HOA bookkeeping, they more affordably keep your day-to-day, month-to-month books. But that does not mean they can replace HOA accounting services when it comes to certain occasional details. If you or your bookkeeper have a question or are uncertain about a transaction, reach out to your accountant and let them help. Have a quick consult with your accountant to ensure you properly classify:
- special assessments
- transfers from savings to checking
What to watch out for
In order to avoid unexpected tax bills, community association boards should be aware of income from outside sources (i.e., income not from the owners). Your accounting firm can help you identify this income, but examples include:
- interest income
- commissions from Comcast or other tech companies servicing your owners
The other pattern Rich sees with community association boards is that they sometimes let emotion about their community cloud their judgement. Reach out to your accountants with questions and to get an objective, professional opinion. This will serve to educate your board and avoid any issues and surprises in the long run.