As our farm businesses use tax planning tactics to reduce current tax liability impacts, we do not completely reduce the tax but move the tax to a future year. This webinar will provide details on the importance of identifying and calculating your operation’s deferred tax liability and how that can affect your current and future strategic farm management decisions.
Presenter: Dick Wittman, Wittman Consulting, Farm Manager/Family Business... Read More →
ILSOYADVISOR POST
A Farm Business’ Guide to 1099 Forms
December 28, 2020
A 1099 form is a tax form that states various types of income other than salaries, tips and wages. Producers may send and receive these forms for income items such as rent, custom work, dividends, interest, patronage, government payments and several others. It is important to understand the different 1099 forms as they are a necessary component of tax planning and preparation.
Common 1099 Forms to Send
The most common forms producers send a recipient are 1099-MISC and 1099-NEC (new for 2020). Other common forms are 1099-INT and 1099-DIV.
Form 1099-MISC is used to report miscellaneous income. The most common reason producers send a 1099-MISC is when they paid at least $600 in rent to a landlord; the amount paid is reported in Box 1. Foreign agricultural workers would also receive a 1099-MISC with reportable compensation of $600 or more and backup withholdings in Box 3. Please see 1099-MISC instructions for more details.
Generally, payments of $600 or more for custom work, contract laborers, attorney fees, vet fees, etc. require the taxpayer to send a 1099-NEC. This is a brand new 2020 tax form to report non-employee compensation. In prior years, these payments were reported on 1099-MISC.
Business owners send 1099-INT forms to recipients that were paid more than $600 in interest, and 1099-DIV to those that were paid more than $10 in dividends (including capital gain and exempt-interest dividends) and other distributions of stock. Producers commonly send a 1099-INT form if they are using unconventional financing options. Additionally, producers may send a 1099-DIV if they are a C or S Corporation that pays dividends to the shareholders.
More information about 1099 filing requirements can be found here. It’s important to note the producers are not required to send 1099s to C or S Corporations.
Preparing 1099 Forms
When sending out any 1099 form, the payor is responsible for obtaining and completing the recipient’s name, address and social security number/employer identification number (EIN). There are a few ways a producer could prepare 1099 forms for the recipients and the IRS. If the chosen method is to mail in a paper form, the producer will need to order specific forms that are readable by an IRS scanner. These forms can be ordered by calling the IRS at 1-800-TAX-FORMS (1-800-829-3676) or going to the IRS website. The producer would need to send Copy B of the 1099 to the recipient and keep Copy C for his/her own records. They also need to complete and file Form 1096. This form acts as a summary for different types of 1099 forms being filed. Other methods of preparation would include using an accounting software or working with a professional accounting service. 1099 forms are due to the recipient by January 31, and to the IRS by February 1 for 1099-NEC or March 1 for 1099-MISC (paper file). If you file electronically, 1099-MISC are due March 31. If these dates fall on a Saturday, Sunday or legal holidays, the due date is the next business day.
Receiving 1099 Forms
Producers could receive several types of 1099s including, but not limited to, the following: 1099-MISC, 1099-NEC, 1099-INT, and 1099-DIV forms. If government payments were received (MFP, CRP, CFAP, etc.), then a 1099-G is issued. Patronage from cooperatives would be stated on a 1099-PATR. Crop insurance proceeds are reported in Box 9 of 1099-MISC. Proceeds from selling stocks, commodities, regulated futures contracts, options, etc., are reported on a 1099-B. Another common form issued to producers is a 1099-S, which reports proceeds from real estate transactions. The IRS has many great resources about the different 1099 forms. There is an easy-to-follow chart that breaks down each form and their requirements. To review this chart, click here.
Importance of Understanding
Having general knowledge about 1099 Forms can be very beneficial to producers. Knowing filing requirements, differences in forms, and information needed for each will make the preparing and filing process smoother. Likewise, understanding the various types of 1099s one might receive throughout the year will make it easier to gather all necessary documents during income tax preparation.
Nada Stonebraker
The author is field staff at Illinois Farm Business Farm Management since July 2019.
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