One thing that surprised us a little bit last year when preparing our farmers’ tax returns was new questions that the IRS was asking regarding Form 1099s on all tax returns. These two questions were asked on Form 1065, 1120, 1120S and schedule C and F. The two questions asked on the forms were:
Form 1099s are required for almost all payments for services to non-incorporated entities that you incur during the year if the payments total $600 or more. Also, if you are making machine hire or contract hire payments, these form 1099s are especially important since major penalties may be incurred if these forms are not filed properly.
Other payments that require Form 1099s are also subject to penalties and these penalties seem to increase every few years and can add up to a major non-deductible reduction to your cash balance.
In some cases, you may be notified by the IRS that you will be required to perform backup withholding on certain payments to your vendor. Ignoring or performing this task incorrectly can also subject you to additional penalties.
The filing season for these forms is coming up soon (given to vendor by January 31 and normally filed with IRS by February 28) so now is the time to make sure your accounting system is ready for these requirements.
Paul Neiffer, CPA