1099 Forms for Agriculture: a 2012 Update

By: David Miller, EA, Farm Management Specialist, Emeritus

As the end of 2012 is quickly approaching, the question of issuing 1099s is coming to the forefront again. In 2011 there were two new questions on Schedules F, C & E and Form 1065 (the partnership return) that have an impact on whether or not you will need to issue 1099s for 2012.  The first question on the schedules is “Did you make any payments that would require you to file Form 1099s? yes/no”. The second question is “If yes, did you file all required Form 1099s? yes/no”.

The penalties for not filing 1099s are $100 per form that should have been filed, and if the IRS determines that you intentionally disregarded the regulations, the penalty is $250 per form. So it is necessary to file 1099s if needed, and you certainly do not want to answer “yes” to the first question and “no” to the second question. As one tax professional I know stated, that would be like waving a red flag in front of the IRS. You would just be opening yourself up to questions from the IRS.

Requirements for 1099 MISCs:

The rules state that if you (as a Sch F, C or E filer or you file a partnership return) pay an individual or an unincorporated business $600 or more for rents or services for your business, those payments are to be reported to that person or business on a 1099 MISC by January 31, 2013. Some of the most common payments that are reported for farm businesses are those for cash rents, custom work, repairs and maintenance, accounting & tax work, vet services and legal expenses.

If you pay a neighbor $600 or more for cash rent, a 1099 MISC is required. If you hire a neighbor to round bale your hay, harvest your grain or chop your silage and you pay them $600 or more, a 1099 MISC is required. If you hire a contractor to do bulldozer/backhoe work or to construct a building and you pay them $600 or more and they are not incorporated, a 1099 MISC is required. If you pay your accountant $600 or more to help with your book work and do your tax returns and their accounting practice is not incorporated, a 1099 MISC is required. If your veterinarian (or other person providing services to your farm business) is either a sole practitioner or in a partnership and you pay the firm $600 or more in 2012, a 1099 MISC is required. And finally, any payments of any amount made to an attorney or law firm for business purposes is required to be reported on a 1099 MISC.

LLCs – to 1099 or not to 1099:

If a business you are paying or have paid is organized as an LLC (limited liability company), that business is taxed either as a sole proprietorship, a partnership or a corporation. So, if the LLC is not taxed as a corporation and you pay them $600 or more for rents or services rendered, a 1099 MISC is required.

Farm-related expenses that are not subject to being reported on a 1099 MISC are feed, seed, fertilizer, farm supplies, fuel and other non-service items.

1099 INT

If you have borrowed money from an individual for business purposes and you pay them more than $600 interest during the year and that interest is deductible on Schedule F, C or E, a 1099 INT is required to be issued to that individual.

Information needed for 1099s

To complete a 1099, you will need the name of the person, their address, their social security number or employer identification number, the amount paid and what the payment was for. First, you will need to go through your records to determine who you paid, how much they were paid and whether they should get a 1099 or not. Second and most important, you need to get their social security number or employer identification number. The Form W-9 is an IRS form used to get names, addresses and ID numbers. The best time to get this information is before you pay the person that has done the work.

The deadline for sending 1099 forms to the person or business is January 31, 2013.  Form 1096, the Annual Summary and Transmittal of U.S. Information Returns, along with the IRS’s copies of the 1099s that you issue must be filed with the IRS by February 28, 2013.  Copies of these forms can be ordered from the IRS at their website: http://irs.gov.