Tax advice & compliance
Our 100% focus on community associations
ensures we’re positioned to address tax issues.
Tax engagements are frequently completed in conjunction with an audit or review engagement. Upon completion of the other services, our tax team will prepare the association’s tax returns. We also perform tax-only engagements.
Federal Tax Returns
Most residential community associations file form 1120-H annually. In some cases, residential associations can file form 1120. For a small group of associations that are federally exempt under code section 501(C), form 990 and in some cases form 990-T is filed. Commercial associations file form 1120.
Our team of association tax experts selects the tax return that is most appropriate to file for your association. Considerations include taxable income, allowable deductions, tax code, excess funds held by an association, tax rate and risk of Internal Revenue Service inquiry or audit.
Hawaii State Tax Returns
State Income Tax - Hawaii Revised Statutes (HRS) 235-9 does not provide a state income tax filing exemption for associations in Hawaii. Accordingly, Hawaii associations are required by HRS 235-92 to file Form N-30 for their state income tax return. Hawaii state taxable income on Form N-30 is governed by HRS 235-2.4(gg) for associations that file Form 1120-H for their federal income tax return. The Hawaii state income tax rate is between 4.4% - 6.4% depending upon the amount of taxable income for the year. Capital gains have a unique application of the state income tax rates in determining the related state income tax on capital gain income. Lastly, if your association has a Federal tax exemption under 501(a), then your association is automatically exempt from having to file Form N-30 as a state income tax return. However, if such an association has UBI and is required to file Form 990-T for federal income tax purposes, then the association would have to file Form N-70NP for Hawaii income tax purposes to report the UBI.
General Excise Tax - Hawaii associations are subject to the General Excise Tax (GET) that taxes gross income not exempt from GET. HRS 237-24.3(2) provides that amounts received by the association in reimbursement of sums paid for common expenses are exempt from GET. Income received by the association from income sources such as parking, interest income, commissions, vending machines, laundry facilities, and other miscellaneous income are taxable for GET purposes at a base excise tax rate of 4% plus a county surcharge rate that varies by county. Associations with a 501(c)(3), 501(c)(4), or 501(c)(12) federal tax exemption may apply for exemption from GET—note that the GET exemption for such entities is not automatic like the state income tax exemption and also note that 501(c)(7) federally exempt entities may not apply for a GET exemption. The GET tax returns that must be filed are the periodic Form G-45 and the annual Form G-49. The periodic Form G-45 filing requirement will vary depending on whether your association is subject to monthly, quarterly or semi-annually filings. Our firm can prepare both the state income tax return and the general excise tax returns for your association.
Generally, assessment income from owners is not taxable. Filing form 1120-H will not result in tax on assessment income. However, filing form 1120 may result in tax on member assessments in excess of expenses incurred on behalf of members. Annually, we recommend that associations obtain the owners’ approval to adopt Revenue Ruling 70-604. If an association chooses to file form 1120 it is important to understand the limitations of Revenue Ruling 70-604.
What is taxable?
For most residential associations, taxable income comprises income
from sources outside of the association’s members (owners).
Examples include bank and/or investment income, cell tower
lease income, laundry rental income, sale of a unit.
Important information your preparer will need:
- Financial statements
- General ledger
- Taxable income for the year including interest income, sales of assets, other income from external sources.
- Prior year tax return credits or underpayments
- Estimated tax payments made during the year
- Payments with extensions