April 2, 2010

This week's tip is a sad reminder that associations need to file tax returns just like the rest of corporations in the United States.

Even sadder is that you may not realize the corporations have a different tax deadline than the average Joe, who has to file by April 15 every year.

If your association follows a calendar-year accounting method, you're required to file association tax returns by March 15 of every year. If your association doesn't follow calendar-year accounting, its taxes are due on the 15th day after the third month of your taxable year. So if your calendar year ends on July 31, your tax return is due on Dec. 15.

Fear not. If you didn't realize that rule applied to your association, you can seek an extension. There's good news and bad news when you file an extension. The bad news is that just as you have to pay interest if you personally file for an extension and end up owing the government money, your association is also on the hook for interest for that period after the March 15 deadline that its taxes weren't paid.

The good news is that most associations typically don't owe the government. They don't make much, if any, money. "That's by far the minority of associations," says James Donnelly, president and CEO of Castle Group, a property management company in Plantation, Fla., that manages 55,000 association units.

Why don't most associations have much, if any, of a tax liability? In general, most take in only funds to operate their facilities; they don't conduct income-generating activities. "If almost all your income is from association assessments and almost all of your outgo is spend on maintaining the property, you don't have to pay taxes on that money," explains Robert Galvin, a partner at Davis, Malm & D'Agostine PC in Boston who specializes in representing condos and co-ops.

However, you do have to pay taxes on income-generating activities. To learn more about what qualifies as income—and to find out how to minimize your association's tax liability, see our new article: Tax Day: What Your Board Must Know about Association Taxes.

Best regards,
Matt Humphrey
President