While associations are usually organized as nonprofit corporations, they generally do not have tax exempt status from the federal government. However, the standard tax return for an association (the 1120-H) provides some benefits as the federal government acknowledges the association has a nonprofit purpose.

Advantages of an 1120-H

  1. Flat tax rate of 30%
  2. Exempt income (assessments and most uniform charges to members) is not subject to taxation
  3. Simple form with lower preparation fees than a typical corporation

So what is taxable income for an Association?

  1. Interest Income
  2. Rentals
  3. Royalties
  4. Resale Certificates
  5. In general, revenues from nonmembers and charges for usage or services that are not uniform

The good news is associations are allowed to allocate reasonable expenses against these incomes to help offset the tax costs.  If taxes are significant for an association, they may consider filing an 1120.  1120 tax rates start lower than the 1120-H, but all income is considered taxable by default.  Certain elections are available to help, but mistakes on an 1120 could open more income to taxation than would have otherwise been on an 1120-H.  

Questions?  Contact us!

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Armstrong, Vaughan & Associates, P.C.

941 West Byrd Blvd., Suite 101,
Universal City, TX 78148
T: (210) 658-6229
F: (210) 659-7611


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