HOAs At the meeting and upon approval by a majority TVI, an HOA must prepare a more comprehensive type of financial report regardless of any provision to the contrary in the HOA documents. The members must vote to select the specific type Lower level of financial reporting In a condominium, cooperative, or HOA, if approved by a majority of eligible TVI present in person or by proxy at a duly called and quorumed membership meeting, the board may prepare: ● A report of cash receipts and expenditures in lieu of a compiled, reviewed, or audited financial statement. Annual financial report contents Financial statements include the following components: ● Accountant’s report : The accountant’s report is a report of the accountant’s observations, findings, and disclaimers. ● Balance sheet : A balance sheet is a statement of an association’s financial position at a particular moment in time. Expressed as an equation, a association’s balance sheet shows assets = liabilities + shareholder value. ● Cash flow statement : The cash flow statement summarizes all activity in the cash accounts of the corporation. The statement user could imagine that, if one had access to the bank statements for the year, the cash flow statement could be created by sorting all transactions and summarizing them into categories. The checks would be sorted by what type of bill was being paid, the deposits would be sorted by the source of the inflow, and the resulting statement would create a cash flow statement in what is called the direct method format.
of report (review, compilation, or audit) at the special member meeting. The association must provide the report or make it available to its members within 90 days of the meeting or within 90 days of the end of the fiscal year, whichever occurs later.
● A report of cash receipts and expenditures or a compiled financial statement in lieu of a reviewed or audited financial statement. ● A report of cash receipts and expenditures, a compiled financial statement, or a reviewed financial statement in lieu of an audited financial statement. ● Statement of revenue and expenses : Similar to the monthly financial report, this should display the annual budget, and the revenue and expenses for the fiscal year. It should include columns showing the differences between budget projections and actual, and the percentage of actual to budget. Developer and non-developer revenue must be disclosed separately. ● Statement of changes in fund balances : In fund accounting, revenue and expenses are charged to specific revenue sources and are segregated from one another. For example, operating funds are one fund account, reserve funds are a second fund account, a loan is a third fund account, and each special assessment constitutes additional fund accounts. The monies may be placed in separate bank accounts or may be tracked separately. Financial statements and reports are usually prepared on an accrual basis, using fund accounting in accordance with GAAP, by a licensed Florida CPA. Cash basis reports that reflect cash receipts and expenditures are an exception.
● Notes to the financial statements : These are the notes regarding the financial statements as written by those who contributed data to the reports.
TAXES
Taxes and the preparation of taxes are also essential parts of the financial management of a community association. Federal income tax return A not-for-profit corporation is not tax exempt. Every association, whether for-profit or not-for-profit, is required to file an annual income tax return with the IRS. Association’s income tax obligation The association must file its taxes by using one of the two methods listed below: ● Form 1120 (IRS Code Section 277) : Excess revenue from members over expenses is subject to taxation, unless the excess is returned to the members or is deferred to offset the following year’s assessments (in effect, reducing the members’ assessments for the next year). ● Form 1120-H (IRS Code Section 528) : The association can elect to exclude from taxation exempt function income, generally consisting of revenue from member assessments. An association does not qualify to use this form if: State corporate income tax In 2021, the legislature addressed the taxation of benefits received by a corporation (including community associations) pursuant to the Coronavirus Aid, Relief, and Economic Security Real estate (property) taxes Generally, in a condominium or cooperative, real estate taxes are assessed against each unit or parcel for its portion of the common property. A cooperative may pay real estate taxes as an association instead of its members being assessed. Check the association documents to determine the method of payment of real estate taxes.
○ It does not derive more than 60% of annual revenue from residential sources (assessments). ○ The square footage of residential units is less than 85% of the total square footage of all units, such as in a hotel condominium, mixed-used condominium, or an association that includes the operation of large clubs. Under both methods, the association may be subject to tax on investment income and other types of income. The board should consult with the association’s accountant to determine the most advantageous method.
Act of 2020. If an association is required to file a return under F.S. 220, it should consult with its accountant when preparing the tax return.
In an HOA that has common properties or common areas, the association usually, but not always, pays the taxes. It may be possible for the association to transfer real estate tax and have the tax included in the individual members’ tax bills by application to the county property appraiser’s office.
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Book Code: CAMFL1524
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