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susanwilliams

Non-Profit Tax Question

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Of course going through the drill to be officially declared a tax exempt organization is the right thing to do.  However, I bet 99% of small organizations, clubs and civic associations don't  bother.  Acquiring tax exempt status is only significant in most cases if the organization is a charity or educational organization that solicits funds and offer a tax exemption for the funds collected.

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6 hours ago, susanwilliams said:

We would use the money to pay for landscaping expenses therefore reducing our dues for next year by 20%.  Our dues have fluctuated based on the proposed budget for each year.  We are not tax exempt.  Thanks.

 

Then your HOA is subject to income tax on any profits it earns. Paying for landscaping expenses of what I assume are common areas in the HOA would likely be a capital  expense which would increase basis in the common areas and may allow for some depreciation deduction for a period of years depending on the details of what is done. How is the HOA organized? As a corporation?

 

Whether the HOA is permitted to make the expenditure in this way depends on what the HOA organizing documents say.

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4 hours ago, RetiredinVA said:

Acquiring tax exempt status is only significant in most cases if the organization is a charity or educational organization that solicits funds and offer a tax exemption for the funds collected.

 

I disagree. It matters because whether you are tax exempt or not affects what forms the organization may need to file with the IRS (and perhaps the state/local governments too) and whether the organization has income tax to pay. If the organization truly runs at no profit (i.e. the deductible expenses are always at least equal to or more then the income) then the organization does not have income tax but it still may need to file the appropriate forms and may be penalized for failing to do so.

 

Now, not all HOAs qualify for tax exemption. Without more information, I cannot tell whether this one would qualify. But if the HOA board is at all unclear about the HOA tax responsibilities then it ought to see a tax professional for help, ideally one familiar with HOAs.

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My point is not about what organizations should do, it is about what they DO.   A bowling league, softball league, tennis club, book club,  PTA, etc. of which there are thousands (perhaps millions)  may collect dues and pay for use of alleys, equipment, trophies, school supplies, etc. and never even think about trying to qualify as a tax-exempt organization or filing income tax reports.

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4 hours ago, RetiredinVA said:

My point is not about what organizations should do, it is about what they DO.   A bowling league, softball league, tennis club, book club,  PTA, etc. of which there are thousands (perhaps millions)  may collect dues and pay for use of alleys, equipment, trophies, school supplies, etc. and never even think about trying to qualify as a tax-exempt organization or filing income tax reports.

 

Most small informally organized groups like book clubs certainly don't give much thought to taxes, though they likely have no tax obligations anyway. HOAs, though, aren't like a book club. They tend to be formally organized, often as a corporation. And corporations are obligated under federal tax law to file an income tax return every year regardless of income. Organizations that are set up as formal business entities really do need to think about their tax obligations.

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