As a legal business entity, your HOA must file taxes. Filing is an important thing to do, and there is one form in particular that you should know about, and that’s the 1099-MISC form.
If you have a property management company, they will likely take care of most of the tax filing process for you, but it is important for you to have a basic understanding of the process. Read on to better understand the ins and outs of filing 1099-MISC forms as part of your association’s tax filing process.
What is a 1099?
A 1099-MISC is a federal tax form that reports non-employee income (also known as miscellaneous income) to the IRS. It is generally used for rentals and non-employee compensation.
As an HOA, you must send a 1099-MISC to each contractor or vendor to whom you paid fees for rent during the year. This applies to the following situations in which the HOA pays rent of $600 or more to any entity or individual for:
- Office space or any other space, including land
- Renting machinery or equipment; e.g., pressure washers or lawn equipment
- Rent paid for any items used during a community event
If the rent is paid to a professional property manager, you do not need the form. Additionally, if the fees paid were under $600, then completing the form is unnecessary.
How Taxes and HOAs Work
Like any other business, an HOA has two categories of money – the funds that come in to the association (usually in the form of assessments from homeowners), and the funds that go out as expenses. Also like any other business, the HOA must pay taxes on its income.
However, there are some exceptions that apply to HOA organizations. One such exception is that HOA can write-off some expenses:
Most association income is not taxable, including:
- Assessments
- Fines and fees, including late fees
- Interest on late payments
- Facility rental fees charged to members of the association
Income from any other sources are taxable, for example:
- Income from renting facilities to non-community members
- Bank account interest
- Guest fees
- Payments for easements, such as cable lines or cell towers
Sending 1099-MISC forms to anyone that was hired over the year documents the expense, and that offsets any taxes owed on that amount of profits.
Why Filing 1099 Forms is Important for Your HOA
In order to file the 1099-MISC, you will need the recipient’s Tax ID number or Social Security number, as well as their name and business address. Also, be sure to keep proper documentation of all transactions, i.e., invoices, receipts, and check stubs.
Writing the 1099 forms minimizes tax liability by documenting your expenses, thereby offsetting any profits that would otherwise be taxable. This will allow your HOA to keep as much money as possible in its accounts in order to run and manage your community properly.
I think you should review the requirements for filing 1099-MISC. It’s important to note that the reason for Form W-9 is to prevent backup withholding from the payments to the vendor. The management company should not pay vendors until they have a completed Form W-9 from the vendor and have verified the accuracy of the taxpayer’s id number. If the vendor fails to provide the correct EIN or SSN requested, the payer is required to withhold income taxes from the payment and remit that to the IRS.