Homeowners' Association

[Lion]

Form 1120-H for a homeowners' association. They put some money away for capital improvements in a CD. The year I'm preparing, they earned $200 interest when the CD matured. That doesn't go with item B Total exempt function income, does it? It goes down with Gross Income 2 Taxable interest, right? So, they'll pay tax on half of it after their $100 Specific deduction... (They've never had more than $12 interest before.) Thanks and Happy Thanksgiving. I'm certainly thankful for this forum.

[zeros]

Non-Direct Expenses

That income is taxable but you can deduct the non-direct expenses which you probably have. Income less expenses, less $100 = taxable income. No loss carry-forward.

[Lion]

Expenses

Well, their expenses are things like snow plowing, brush removal, and liability insurance. Don't think any of those could be deducted against CD interest income. And, good grief, I just realized they need deposit coupons! Can't pay the tax with the return? They never had tax before, so didn't realize the process. Ugh.

[BOB W]

Check interest/dividend income exclusion code 14 and its meaning. I believe if the money earning interest is for related purposes it can be exempted. At least it is for an exempt 990. I'm not at where I can check into this at the moment.

[taxmandan]

If they buy gas/diesel for off road use (snowplow, mower, etc.) be sure to claim the fuel tax credit. Unlikely that they buy dyed fuel, so they can take the credit. That will take care of some of the income tax.

Daniel

[zeros]

Non-Direct Expenses

This would be the office supplies, accounting fees, etc. I would think you would have some of this.

[Lion]

TaxWorks

They did have a bit of administrative expenses by reimbursing the treasurer for stamps and printing and stuff. I'll allocate that to help a bit. I guess I allocate based on income, so $7,000 exempt income and $200 taxable interest won't move much expense against the $200. They don't have any tax prep fees for the year with the tax, because they got behind and are doing two years at once. I'll finish this up to deliver to her today, probably.

The problem is not so much the tax that's only $30. It's that the treasurer is leaving town until 2008 and they have to pay via EFTPS or wait for a payment coupon to arrive in the mail !!! They never had tax before, so I never realized they can't just enclose a check with their return like normal people. This isn't due until 15 December, but treasurer leaving town Monday.

From the Form 1120-H instructions:

Income that is not exempt function income includes:
...4. Interest on amounts in a sinking fund.

And, the Form 1120-H calls the section below Gross Income

Deductions (directly connected to the production of gross income, excluding exempt function income)

so not sure if ANY of their expenses are directly connected to the production of gross income...

These folks assessed each family $100 for a capital fund and after a year or two had enough to buy a CD which matured during the fiscal year I'm working on. They have it separate on their reports as a capital fund. In fact, with that matured CD and their more recent capital assessments, they just bought a $5,000 CD which will mature in 2008 or 2009. So, we'll have tax every couple of years going forward.

Thank you very much for everyone's help and suggestions.

[JohnH]

Waiting for coupon

The treasurer could write the check for the payment & leave it with you or another party for delivery to the bank when the coupons arrive. Do you have any 8109-B's or a way to get some?

[erchess]

How about

doing a power of attorney to enable you to do the EFTIPS payment whenever you get darned good and ready so long as it's by the deadline?

[Lion]

Wonderful Ideas

I love all your helpful ideas. Isn't this a great place to brainstorm?! We can come up with solutions so much faster when we have smart people around us. Thank you everyone for all your comments and suggestions.