Introduction:

At the start of every year, the HOA board needs to get together and make sure they are ready and well-organized for the year ahead.

For the most part, his means taking care of daunting financial and legal obligations, including:

  • Annual audit (led by a CPA)
  • Taxation (Form 1120-H)
  • Insurance coverage
  • Review of governing documents
  • Creation of an annual report

This is the nitty-gritty side of HOA management that can easily be overlooked due to its intimidating nature, but is incredibly important to address, especially at the start of each year when due dates for certain legal obligations begin to creep up.

Completing these tasks almost certainly requires external assistance from a CPA, lawyer and insurance expert, which makes the process more ardous and dependant on good communication between the various parties. 

In order to address this challenge of communication, this checklist has been built with approval tasks at various stages that need to be approved by both the HOA board representative (e.g. President, Treasurer), and the vendor assisting the HOA.

This ensures everyone is in agreement that tasks have been completed before moving on to the next stage of the process. 

By completing this HOA Annual Board Organization Checklist at the start of each year, your HOA will feel fully confident that your community is well-prepared and looking forward to an exciting year ahead. 

Let's get started. 

A little info about Process Street

Process Street is superpowered checklists. By using our software to document your processes, you are instantly creating an actionable workflow in which tasks can be assigned to team members, automated, and monitored in real-time to ensure they are being executed as intended, each and every time.

The point is to minimize human error, increase accountability, and provide employees with all of the tools and information necessary to complete their tasks as effectively as possible.

Enter basic details

First, enter some basic details regarding your board members and select the categories you need to address in order to get organized for the year ahead. 

  • 1
    Annual audit
  • 2
    Taxation
  • 3
    Insurance requirements
  • 4
    Annual report

Enter CPA details

Enter the contact details of the CPA who will be conducting the annual audit.

Annual audit:

Gather all financial statements

Gather all relevant financial documents to prepare for the audit.

By completing the sub checklist below you will ensure that no statement has been overlooked.

  • 1
    Income statement
  • 2
    Balance sheet
  • 3
    Budget statement (current & next year)
  • 4
    General ledger
  • 5
    Bank reconciliations
  • 6
    Payroll records
  • 7
    Original invoice expenses
  • 8
    Loan statements
  • 9
    Copies of signed contracts & leases
  • 10
    Copies of insurance coverage
  • 11
    Copies of reserve schedules

Note: if you gather all financial documents and make them accessible from a secure link and enter that link in the above form field, it will be automatically populated in a following task's email template, making it super easy for you to provide the CPA with everything they need to get started. 

Send statements to a CPA

Now that you have gathered all of the relevant financial documents, you need to securely send them to the CPA so they can begin the audit.

Use the email template below to inform them that all financial documents have been gathered and are ready to be reviewed. 

Grant CPA access to HOA records

Make sure that the CPA has been granted permission to access any records that they need for the audit. 

For example, The CPA will need a copy (or access to) the homeowners association’s trial balance, general ledger, and journal entries to determine what accounts and transactions are material and significant to the audit.

For your own record-keeping purposes, note down which documents the CPA has been granted access to.  

Complete annual audit

The audit report is issued after the CPA is satisfied that the homeonwers' association’s books and records are free of material misstatement and properly stated in accordance with GAAP.

You can attach and/or link to the audit report below. 

Approval: Audit successfully completed

Copy and file audit documents

Be sure to make copies of the audit report and file them in a safe location. 

It's a good idea to store both a hard-copy and digital copy (in the cloud) of the report so it can be easily recovered whenever necessary. 

You can link to the online version of the audit report below. 

Taxation:

Consider consolidating HOA common area tax parcels

Many community associations can reduce their common area tax liability by taking advantage of statutes allowing common areas to be consolidated for tax purposes. 

Talk to your legal counsel about whether or not this applies to you and can save your HOA money. 

You can also check your county assessor website for additional information and FAQ’s.

File tax return form 1120-H

Working in tandem with your legal counsel, organize and file your 1120-H tax return form.

As defined on the IRS website, the purpose of the form is:

A homeowners association files Form 1120-H as its income tax return to take advantage of certain tax benefits. These benefits, in effect, allow the association to exclude exempt function income (defined later) from its gross income.


Form requirements

To file the 1120-H, an HOA must meet criteria set by the IRS, including:

  • 60 percent of its revenue must be exempt.
  • At least 90 percent of its expenses must go toward acquiring, building, managing or maintaining HOA property.
  • No individual member can profit from the HOA's earnings beyond receiving money for doing HOA work: acquiring, building, managing or maintaining property.

Key info to have handy

  • Your Employee Identification Number (EIN)
  • Date the association was formed
  • Detailed Gross Income numbers including Dividends, Taxable interest, Gross rents and royalties, etc.
  • Detailed Deductions including Salaries, Repairs, Rents, Interest, etc.

Due dates

Your HOA must file Form 1120-H by the 15th day of the 4th month after the tax year ends. If your tax year ends December 31st, your form is due April 15th.

There are two exceptions to this. First, if your HOA’s tax year-end in June, the due date with be the 15th day of the 3rd month after the tax year ends. Second, if the due date falls on a weekend or holiday, the due date is the following M-F business day.


Below you will find the a PDF of the latest 1120-H form along with instructions on how to properly fill it out. Both resources are available on the IRS website.

In general, HOAs don’t pay taxes because they don’t have a profit. In other words, the income that comes in (membership dues, fees, assessments) is used on the usual maintenance stuff and it’s all a wash. However, HOAs must still file a federal tax form with the IRS.

According to Real Manage, a significant advantage of qualifying for Form 1120-H is that it means paying taxes only on “non-exempt income.”  Examples of non-exempt income are rental income for any property owned by the HOA, interest and dividends and income from laundry and vending machines. Qualifying HOAs can deduct any income directly related to the generation of this non-exempt income, but must have records that adequately support those deductions.  To calculate the amount of their tax, HOAs that use 1120-H can deduct $100 from their non-exempt income, with the remainder subject to a flat tax of 30%.

Approval: Taxes filed correctly

Will be submitted for approval:
  • File tax return form 1120-H
    Will be submitted
  • Consider consolidating HOA common area tax parcels
    Will be submitted

Insurance requirements:

Review your governing documents

Every start of the year, your HOA must review governing documents to ensure they are up to date. 

Typically, governing documents include:

  • Articles of Incorporation
  • Bylaws of the association
  • Declaration of Covenants, Conditions and Restrictions (CC&Rs), and
  • Rules and regulations

If amendments were made throughout the previous year, make sure your current copies reflect these changes.

Your updated governing documents must be filed in local jurisdiction land records and the SCC. Every homeowner must also be given a copy.


Why are governing documents important?

  • They give boards the authority to govern by providing for the operation and regulation of the association.
  • They provide guidance and protect boards.
  • They protect association members by spelling out their rights and responsibilities.
  • They are supported by local ordinances, state statutes, and federal regulations.

Ensure the HOA has enough coverage

HOAs have very unique insurance needs due to the wide range of roles and responsibilities held by various stakeholders. 

Therefore, it's important that you work closely with and insurance/legal expert such as your legal counsel, to accurately evaluate whether or not you have enough coverage. 

Approval: Insurance requirements met

Will be submitted for approval:
  • Ensure the HOA has enough coverage
    Will be submitted

Annual report:

Create an annual report

Nearly all states require that an HOA has the responsibility to file an annual report with the Secretary of State. Failure to do so could result in the Association losing its “Good Standing” status.

The thought of putting together an annual report can be daunting, but it's not as difficult as it may seem.

There are 5 essential components that must be included:

  • 1
    List of board members (and their respective committees)
  • 2
    Summary of the last 12 months (meeting objectives from previous year, maintenance, landscaping, common areas etc.)
  • 3
    Proposed projects for the next 12 months
  • 4
    Finance summary (budget, expenditures, reserve balances, legal costs etc.)
  • 5
    Report summary

When your team has finished creating the report, attach and/or link to it below for easy reference.

Be sure to follow your Corporation Commission requirements. Failure to file with the Corporation Commission may cost the HOA fees. Failing to file could lead to administrative dissolution which means the state will no longer recognize the Community Association is a legal entity.

Review annual report

Before submitting the annual report and sharing it with your community, conduct a thorough internal review to make sure all important details have been included and is written in a clean and professional style. 


Annual report (file): {{form.Annual_report_(file)}}

Annual report (link): {{form.Annual_report_(link)}}

Approval: Annual report completed

Will be submitted for approval:
  • Create an annual report
    Will be submitted
  • Review annual report
    Will be submitted

Copy and store the report (physical & digital)

These days almost everything is done online, in the cloud, yet it's still important to keep a physical record of all relevant documentation. 

The main advantage is that it gives you a reliable back up source of information if any legal issues were to arise. 

The truth is, there will undoubtedly be a number of occasions where you either need or would prefer to check something in a physical file rather than search for it on a computer. 

Ensure that you have copied and stored the annual report in both a physical and digital format. 

Share the report with the community

Now that the annual report has been created, reviewed, approved, and safely stored, you can go ahead and share it with all community members. 

For record-keeping purposes, note down the date that the annual report was shared with the community. 

Final steps:

Ensure your meeting minutes are accessible

Ensure that your meeting minutes are on file and easily accessible. 

Having these organized at the start of the year will decrease headaches when trying to locate information to resolve a situation, or review a previously made decision.

Confirm date of next board meeting

Confirm the date of the next board meeting. 

Sources:

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