Monday, June 21, 2010
Form 1099 Headaches For Farmers
You may soon need another month at the end of the year, just to get all of your tax information ready to visit your tax advisor. Several major changes were recently made in the US tax code, and one, in particular, will hit hard at farmers. If you have ever received a Form 1099 from a company paying you, keep that in mind, because you will have to issue Form 1099 to many companies that you are paying. And that is only part of it!Subscribers to the Cornbelt Update last week learned about this development, which will cause most farmers to spend a lot more energy in collecting information ahead of their annual visit to their tax advisors. The health care bill, which was at the top of the Washington, D.C. agenda, was the vehicle that carried a number of changes in the tax law. One of those changes is found in Section 9006 and greatly expands the use of Form 1099 which documents income, other than wages and salaries. For example, if your annual repair bills at the local welding shop exceed the $600 threshold, you will have to issue a 1099 to Joe’s Welding Service, which means you have to find out his corporate name, official corporate address, and obtain his federal tax identification number. Once you have that you will mail him a Form 1099 that indicates you have paid him $603.67 during the prior 12 months.
Maybe you bought a new computer from Dell Computers and wrote a check for $738 to cover the computer, a printer, and an ink cartridge. At the end of the year you will have to obtain the corporate name, address, and federal tax identification number for Dell and mail them a Form 1099 from Smith Farms.
The requirement is not just for one single payment over $600, but the accumulated payments throughout the year. Whether you are making monthly interest payments to the bank or writing a single check at the end of the year, you will have to send a Form 1099 to your bank and it will have to supply its Federal tax ID to you. Maybe it is monthly bills to your diesel fuel supplier, or to the bottled water company. If you want to be able to deduct all of those expenses at Menards, Farm and Fleet, Ace Hardware, Lowe’s, or anywhere else you run for a bag of bolts and a grease gun cartridge, you will have to send them a Form 1099 if your total checks exceed $600 during the year.
Extension economist Craig Althauser at Kansas State University describes some of the details in his monthly newsletter in which he says corporations being paid are no longer exempt from receiving Form 1099 from their customers and clientele. He says you may have issued a Form 1099 in the past for rent, interest, and custom work, but now the requirement is spread to everything that is considered “property.” That includes seed, fertilizer, chemicals, feed, supplies, medicine, fuel, and other goods and services.
Another element of the health care bill expands the information required on the W-2 form supplied to employees, if they are provided with health insurance as part of their compensation. The reporting will include the cost of the health insurance premiums paid for the employees. They will not pay tax on the amount, but will serve to verify whether the employer was in compliance with health care requirements.
These new provisions do not become effective next year, but will become effective for tax year 2012 and will make the first few weeks of 2013 rather tedious in accumulating the necessary information. There is legislation already being considered by Congress to repeal Section 9006, but unless it is approved and signed into law, it will create substantial changes in the tax preparation process, and also generate an estimated $17 billion additional dollars in tax revenue for the US treasury over the coming decade.
Summary:
Recent changes in the tax code will require farmers to issue Form 1099 to any business which was paid more than $600 in the prior tax year. Such payments would include interest, seed, chemicals, fertilizer, parts and repairs, and other usually deductible items on the farm. The requirement will cause taxpayers to collect names, addresses, and federal tax identification numbers for those many companies which provided goods or services in the prior tax year.
Posted by Stu Ellis on 06/21 at 01:17 AM | Permalink
Comments
Posted by: Jim Maloney at June 21, 2010 5:05PM
What a joke. The previous comment is not entirely right. It will not stop under the table cash payments. No one will send a 1099 for those. For those that make a good amount of money at all, you already are ocassionally audited by the IRS where they add up all the money that was deposited in your bank accounts and then you have to prove to them it was not income or it was reported income. Way more effective than 1099’s. They should not just pick on business. They should make anyone who pays anyone more than $600. send a 1099. A lot of non deductible consumer goods are income to the seller but not a deductble business expense to the purchaser, thus no 1099 is sent. Then the majority of people would hate doing it and the bureacratic joke of a law would be repealed. Political contributions should also be a 1099 requirement. This would also help promote the repeal of it.
Posted by: Rod Fritz at June 25, 2010 11:11PM
Yea, but the extra IRS govt workers needed to process the extra paper earn 50% more than their private sector counterparts, so the govt will be 20% further behind.
Posted by: Freedom Fighter at June 27, 2010 7:07AM
Has anyone considered the fact that 1099 forms require federal tax id#‘s for businesses and social security numbers of the individuals? I’m not sure farmers want the responsibility of keeping that information secure.
Posted by: Doug Anderson at July 14, 2010 4:04PM
This may be an added bookkeeping headache, but if you know in advance and watch your expenses, it’s just a bunch of extra pieces of paper at the end of the year. From the government’s prospective (I did 32 years with IRS) the purpose is to reduce the under the table payments that don’t get reported (untaxed) which is estimated at about 30% of sole prop income. The tax they don’t pay causes higher rates for the rest of us.