COMMUNITY ASSOCIATION EDITION

For most communities, those on a calendar fiscal year, we just saw the end of another financial year.  The clock is now ticking for the filing of your Federal and State Income Tax Returns.  Businesses, and community associations are businesses, have 2-1/2 months from the end of the fiscal year to file their returns (unless they pay their estimated tax liability and file an extension.)  Individuals have 3-1/2 months, hence the April 15 deadline, but your association must file by March 15.

You (or your management firm) should now be closing out the previous year.  That means issuing W-2’s to employees and 1099’s to vendors.  Incorporated vendors need not receive a 1099 this year, but that may change by next year, so begin requiring tax ID numbers before issuing any payments in 2012.  You’ll want to review your balance sheet to see if it is in order and make the necessary adjustments in 2011.  Your income statement will automatically zero-out because income statements report current year revenue and expenses while balance sheet s represent the complete financial history of the business.  You may still have time to defer any profits to reserves to avoid taxation—consult your accountant on that issue.

While the accountant is reviewing the books for tax prep, he or she will likely be preparing for the audit.  Audits come in three forms:  a review, a compilation or a full-blown audit.  Reviews and compilations are less involved and less costly, but your governing documents may require an audit.  If not, talk to your accountant to see if you could save a few dollars.  They will still make sure the numbers appear to be in order and, with bank reconciliations, your funds are relatively safeguarded even under the lesser scrutiny.

The audit report will show the balance sheet and financial picture the way they have been reported for tax purposes.  This may differ from the way your accounting staff or management may have reported them.  Once the report is out, there may be some adjusting entries needed to bring the in-house reports in line with the official record.  It’s not a sign of incompetence to need some adjustments; just a difference in the purpose of the reports.  We tell our clients that we are not their tax accountant; that the primary purpose of our report is to ensure that the board knows every dime has been accounted for.

Now is the time to file your Personal Property Return.  Often, the accountant prepares this form, but it can be completed online at www.dat.state.md.us and printed.  Your office staff or manager will be better able to list board members and their addresses, but let the accountant do it if history shows that you have to report personal property for a personal property tax payment.  If not, you need only complete one page of the four-page form.  If you do not file this form, even though no money is due in most cases, you would see your corporate protection forfeit.

There are a number of CPA firms in the Washington/Baltimore/Annapolis region who specialize in community association tax and audit preparation.  The Community Associations Institute (www.CAIOnline.org) website has a Find a Service Provider link that will enable you to search for accountants in the Chesapeake or DC Chapters.  These accounting firms are familiar with the industry and equipped to conduct the audits rapidly and, therefore, at lower rates than other accounting firms.

Chris Majerle, PCAM
www.AccessMMI.com