New 1099 Law Will Affect Farm Businesses – Time To Get Your Finances In Order

By: Shannon Dill, University of Maryland Extension, Talbot County

An overlooked provision of the Health Care Reform Act will affect US small businesses by significantly increasing tax paperwork. Section 9066 of the act mandates that beginning in 2012 (for all payments after December 31, 2011); 1099 information tax forms must be issued to corporations when the cost of goods or services provided to a company from the corporation is $600 or greater in the calendar year.

The change will dramatically alter the nature of 1099’s and mean that businesses will have to issue additional tax documentation. Currently the IRS Form 1099 is used to document income for contract labor.

Self-employed businesses receive 1099s each year from clients and businesses that issue them to the independent contractors they hire. Under the new law, if a farm business pays $600 or more to the utility company, telephone company, office supply store, farm suppliers etc., they must issue a 1099 to that business or corporation.

The bill makes two major changes to 1099s. First, it requires furnishing 1099s to suppliers of goods and services instead of services only. Plus, it requires that 1099s be issued to corporations as well as individuals, sole proprietors and partnerships.

Farms will see increased paperwork and recordkeeping. If a farm has more than 250 1099s, forms must be filed electronically. Form 4419 (Application for Filing Information Returns Electronically) must be filed at least 30 days before the due date of the returns to obtain approval from the IRS to e-file.

If you are not currently using financial management software, now may be the time to consider it. Programs such as QuickBooks record and categorize transactions, accumulate vendor totals and generate 1099s. University of Maryland Extension will be conducting QuickBooks computer classes for farm businesses in the winter of 2010/2011. The first class is scheduled: QuickBooks for Farm Businesses – December 16, 9am – noon Chesapeake College, Economic Development Center EDC 26. For more information contact Shannon Dill or call 410-822-1244.

The federal government plans to use 1099s as a method of increasing revenue by documenting transactions that are currently unreported. Small businesses should start organizing their records early and begin collecting vendor information. A federal identification number or social security number, address and exact business name are required. This information should be obtained by giving the company form W-9 to complete before conducting business with them. If your farm does not have a federal identification number, one should be obtained for protection of your social security number. It is much safer to furnish a customer with a federal identification number than a social security number.

There have been several attempts to appeal this law, but to date all have failed. The IRS has not released specific regulations for the new 1099 preparation law and probably will not release them until 2011.