Florida HOA - Operating Budget Profit and High Delinquent Rate

Started by ChrisH2 • 5 replies • 1365 views

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ChrisH2 (Florida)
Posts: 1

Posted:

I am new to the HOA life and my community has a situation that I am looking to learn more about. We have a high delinquent percent on our monthly dues. We have been able to keep our account in the positive due to a big property insurance decrease this year. Though without it we would be struggling every month. Now at the end of the year we have a positive balance in our operating account. It is close to one month of budgeted expenses.

Do we need to return this money to the owners, even though some have not even paid the full years amount of dues?
Do we need to have the community vote to move it to reserves?
Can we just leave it in our operating account for next year?

If we leave it in our operating account will we need to pay taxes on this money? Even though it technically isn't a profit because we did not collect 100% of our monthly dues?
Can we use this money to pre-pay expenses for the next year?

Any words of wisdom from your experiences would help a lot.

Thanks

SusanW1 (Michigan)
Posts: 5,202

Posted:

Your organization's Treasurer should be able to answer your questions. Ask for a sit-down with this person to explain the finances. For sure, at the annual meeting, all this should have been explained.

In the meantime, you need to study what a "non-profit" corporation is and some basic bookkeeping procedures.

DonnaS (Tennessee)
Posts: 5,671

Posted:

Chris,
The first thing that you must learn is that you never, ever give money back to the membership. With only one year showing profit, it would be absolutely the worst thing to do. You have delinquencies and no hurricanes this year. What about next year? Are your Reserve funds adequate?You know how insurance goes in Florida. How much is in excess. Can you create a line item for another expense? Don't give it back in your situation of so many unknowns as to the delinquencies.

SusanW1 (Michigan)
Posts: 5,202

Posted:

You are looking at cash flow (and seeing this small postive balance) - but you need to look at your Balance Sheet. You said you have lots of Accounts Receivable (outstanding dues not paid). So you are not in such good shape at all. This will be revealed in the years to come!!!

BradP (Kansas)
Posts: 2,640

Posted:

Chris:

Never give back...you don't have to pay taxes on dues collected even if you come out with a surplus. Don't know the dynamics of your community so can't give you advice on reserves, etc.

RogerB (Colorado)
Posts: 5,067

Posted:

ChrisH2, Having a positive balance in your operating account of one month's budgeted expenses isn't much. Is this after putting budgeted income into your reserve fund? To answer your questions:

Do we need to return this money to the owners, even though some have not even paid the full years amount of dues? No, and you definitely should not.

Do we need to have the community vote to move it to reserves? No, that decision should have been part of the annual budget. If not, the Board can decide.

Can we just leave it in our operating account for next year? Yes, if the budgeted reserve fund increase has been met.

If we leave it in our operating account will we need to pay taxes on this money? No, income from assessments is not taxable if you use IRS form 1120-H.

Can we use this money to pre-pay expenses for the next year? Yes, but that would be foolish IMO. Put it in an interest bearing account.

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