Home Owners Associations Nonprofit Financial Management, Part 2

Welcome to Part II of our series on nonprofit financial management tips. Today we’ll take a look at accounting and tax service for nonprofits with a view towards the overall needs for both at a Home Owners Association.

In Part I, we defined an HOA and discussed the definition of duty of care and duty of loyalty. Next, we talked about the nonprofit financial management needs of an HOA, including financial responsibilities and insurance needs.

In Part II, we’ll look into the accounting and tax service needs for HOAs.

Accounting Requirements

The Board of a Home Owners Association is required to keep accurate accounts of the financials of the organization. This includes income from membership fees or assessments, expenditures, accounts receivable and accounts payable. The board must report these financial facts to its members. It is required by law to follow all corporate law within the state in which it is incorporated, and to follow the tax requirements for nonprofit associations if it is incorporated as a nonprofit entity.

Tax Deductions and Requirements

In a cooperative setting, tenants are actually shareholders in the cooperative housing corporation. As such, they do not actually own their residences. Rather, they own shares of stock in the cooperative cooperation, which entitles them the exclusive use of a particular residence in the cooperative.

Because they don’t own their residences, rules regarding tax deductions are a little different than if they owned their home or the actual residence. The cooperative’s tenant-shareholders receive certain tax benefits allowed to homeowners, including the ability to deduct their proportionate share of the real estate taxes and interest allowable as a deduction by the cooperative if the cooperative qualifies as a cooperative housing corporation under IRC Section 216 .

The housing group or cooperative housing cooperation must qualify annually for IRC Section 216; it is not a permanent designation. To qualify, the cooperative must meet the following criteria each year:

  1. The cooperative must be taxable as a corporation.
  2. There must be only one class of stock outstanding.
  3. Tenant-shareholders must have the right to occupy their units for dwelling purposes.
  4. At least 80% of the cooperative’s gross income must be received from tenant-shareholders; 80% or more of the total square footage of the corporation’s property is used or available for use by the tenant-shareholders for residential purposes or purposes ancillary to such residential use; or 90% or more of the expenditures of the corporation during the taxable year are for the acquisition, construction, management, maintenance, or care of the corporation’s property for the benefit of the tenant-shareholders. (Only one of the three requirements must be met.)
  5. No tenant-shareholder is entitled to receive a non-liquidating distribution that is not out of earnings and profits.

Capitalization Policy

We recommend that a Cooperative develops a capitalization policy. Such a policy sets forth expenditures for improvements, such as replacing roofs, windows, carpeting, doors, etc. for the building. It may also budget for alterations to an existing building. This may include enlarging the parking area, adding new bathrooms to the lobby or other improvements.

A capitalization policy for a Cooperative or HOA is similar to any capitalization policy a nonprofit would create. It’s budgeting for the future and for improvements to your organization.

By taking a smart look at the accounting and tax service for nonprofit needs of your cooperative and HOA, you’ll be in a better position to manage it responsibly. That translates into positive benefits for everyone who enjoys living within the HOA.

Beck and Company: Nonprofit Financial Management Expert

At Beck & Company, we have extensive experience and a tradition of creative thinking, technical expertise, and a collaborative spirit that can help your nonprofit achieve its goals. From accounting and tax service for nonprofits to consulting on issues impacting nonprofits today, Beck & Company can help. Contact us today or call 703-834-0776.

Are You Feeling Overwhelmed Performing Accounting and Tax Service for Nonprofits?

Are you feeling just a little overwhelmed performing your own accounting and tax services for your nonprofit?

A Forbes survey found that 14% of nearly 3,000 people surveyed worldwide feel chronically overwhelmed. If you are, you’re not alone. Feeling overwhelmed is common today.

Oh, and by the way – the age bracket feeling the most overwhelm? Those 41-50 years old, or roughly, the age bracket for most senior nonprofit financial management types.

But it doesn’t have to be that way. We’re guessing you went into nonprofit financial management because you love finance, accounting, and the mission-driven culture of a nonprofit organization. You can rekindle that passion for your work again and manage that feeling of overwhelm with a few simple steps.

The Myth of Multi-Tasking

In the book “Scrum: The Art of Doing Twice the Work in Half the Time”, authors Jeff and J.J. Sutherland provide insight into why many people feel overwhelmed. They are trying to multi-task, thinking it boosts productivity. Their studies indicate the opposite.

A chart on page 91 provides statistics that indicate that as one’s attention is divided, productivity decreases. Working on two projects at once means a 20% loss in productivity due to switching gears; three projects at once, and you lose about 40% due to context switching. Context switching leads to feeling overwhelmed because the mind is never at rest, confident it can finish a project. It’s always jumping to the next open action item – which in turn makes you jumpy!

Accounting and tax service for nonprofit providers and nonprofit financial management professionals aren’t immune to this lost productivity. They may actually be at greater risk for lost productivity due to context switching due to the amount of concentration required to process accounting and financial data.

In addition to the focus needed to do your job, something is always clamoring for your attention. Messenger apps, emails, phone calls, colleagues dropping by your office – it’s a never-ending barrage of items competing for your attention.

Focus on One Thing at a Time

Multi-tasking doesn’t work. It’s a lie. So why do we buy into it?

We think it should work because, after all, if you’re busy working on seven tasks, that’s seven projects underway. However, time and time again, studies demonstrate that it is better to have one open task, complete it, then turn your attention to the next one.

Commit to single-tasking rather than multi-tasking. Turn off the television or music while you work. Shut down the instant messenger apps and sounds that ping and bong when emails arrive. Focus on one thing at a time.

Build a Set of Rules

Do you have an open-door policy? That’s a useful and common management technique. However, it can lead to people interrupting you and breaking your concentration. It is helpful to build out a set of rules and guidelines for your team so they know when they can interrupt you.

Some managers choose to post ‘office hours’ or leave their door open as a signal to their staff that they may interrupt them. Another technique is to use a shared calendar such as Google Calendar or an Office calendar and post your office hours there while blocking out time for work requiring deep concentration. Experiment to find the method that works the best for you.

Yes, You Can Turn Off Your Phone

Nearly everyone carries a cell phone today. It makes it convenient to call someone for a quick answer, dial AAA when your car breaks down, or find your coworker after hours. It can quickly turn into an invisible umbilical cord connecting you to the office 24/7. Cut the cord. Tell your coworkers you plan to switch your phone off at night and follow through. Make the hours after 7 p.m. or whatever time you choose “off limits” so you get some downtime.

You Have Permission to Take Vacation, Weekends Off, and Holidays 

Nonprofit accounting and tax professionals often work long hours right before tax season. That may be inevitable. At other times of the year, those extra hours may be unnecessary. Take a vacation, weekends off, and holidays.

Workaholics are lauded in American culture, but they also get sicker faster and burn out. Don’t be a statistic. Close the office door, turn off your phone, and head to the beach or the mountains so you give your mind and body a rest. You’ll be better off for it, as will your nonprofit organization if you return refreshed.

Beck & Company

Beck & Company is an independent certified accounting firm offering accounting and tax service for nonprofits, nonprofit financial management, auditing services and more. Since 1987, we have helped many nonprofits in the Washington D.C. area and along the Eastern seaboard with their accounting and financial management needs. We provide audit, tax, accounting, and consulting service that addresses all aspects of a small to mid-sized nonprofit organization’s business. Contact us or call 703-834-0776 x8001.

Federal Tax Withholding Update

Beck & Company provides accounting and tax service for nonprofits, and as part of our services, we offer informative updates on IRS tax regulations. Updates from the IRS this year include a new W-4 form and a new withholding calculator. It is important for you to investigate these and other IRS updates and inform your nonprofit employees so that they can make informed judgments on their personal withholdings.

Withholding Changes and the New Calculator

The Tax Cuts and Jobs Act made significant changes to tax law including increasing standard deductions, increasing the child tax credit limit, removing personal exemptions, limiting or discontinuing certain deductions and changing the tax rates and brackets.

How do you know if you should double check your withholding? Anytime you have a major life change, such as marriage, divorce, widowhood, new children or similar changes in marital or family status, it is time for a withholding checkup.

Others who should check their withholding amounts by using the new IRS withholding calculator include:

  • Individuals with two or more jobs at the same time or who only work for part of the year.
  • Individuals with children who claim credits such as the Child Tax Credit.
  • Individuals who itemized deductions in 2017.
  • Individuals with high incomes and more complex tax returns.
  • Anyone who works more than one job.

There are certain instances when the withholding calculator may not be adequate to help you assess your taxes. In this case, you should speak with a tax advisor. Situations that may be too complex for the withholding calculator include people with capital gains, those who owe an alternative minimum tax, and self-employed people.

The new withholding calculator asks people to estimate how much they will make in 2018. It also asks questions about other items that may affect taxes. It’s easier to use if you have a recent pay stub handy. The information on your recent pay stub helps you determine how much you are currently withholding and any potential changes you may need to make in the current year.

Of course, the new IRS withholding calculator is only as accurate as the information that you enter. If you enter incorrect information, you won’t get accurate results. Use your best judgment and when in doubt, speak with your tax advisor or an accountant.

W4 Forms

IRS form W-4 helps your employer to withhold the proper amount of taxes from your pay. Nonprofits and those working for nonprofits must withhold and pay proper individual and employment taxes. Being a “not for profit” or having “tax exempt” status does not mean that employees are tax exempt or that an organization is exempt from reporting proper taxes. If a nonprofit has such a designation, it means that the organization does not to pay certain taxes. The people working for the nonprofit must still pay applicable employment taxes.

What to Do if Withhold Information Has Changed

If your withholding information has changed, it is time to update your W-4 information. Human resources managers should be ready to help employees update W-4 information and assist them with any questions they may have regarding the new tax law changes, withholding, and other payroll and personnel requests.

Anytime changes affect income taxes, it’s time to check your withholding. Checking your W4 now may save you from the inconvenience of under or over-paying employment taxes.

Beck & Company

Since 1987, we have helped many nonprofits in the Washington D.C. area and along the Eastern seaboard with their accounting and financial management needs. We provide audit, tax, accounting, and consulting service that addresses all aspects of a small to mid-sized nonprofit organization’s business. Contact us or call 703-834-0776 x8001.