Almost fully back from the rigors of Tax Season, it is now time to start posting on our more usual basis. We got the following question from one of our readers in response to our post on using deferred payment contracts.
"What about the 1099 that you would receive from the elevator that would show the income in the year the cash was received, not the year the crop was actually sold?"
As Congress and the IRS adds more and more items of income requiring form 1099s, it will not be to far in future where all of page 1 of Schedule F will be a reconciling schedule requiring farmers to list all of their income from each type of form 1099 and then provide an explanation of how their actual income from those items would be different. We are not there yet, but I predict it may not be too many years in the future.
For today, a farmer in this situation would make sure to list the gross amount of income from the form 1099 in the appropriate box on schedule F and then provide an adjustment on the other income line. This adjustment can be negative.
For example, assume a farmer sells all of her corn to the local cooperative for $1,000,000 for 2012 with $800,000 in cash received in 2012 and $200,000 received in 2013 on a deferred payment contract. She elects to report all $1,000,000 in 2012 and lets assume she has no other crop sales in 2013. The Coop will issue a 2013 form 1099 to her showing $200,000 of sales (assuming they show it as per unit retains). She will report this $200,000 on the appropriate line and then report a negative $200,000 in the other income box. Since this section will now show a negative number, we would normally attach a schedule letting the IRS know that this represents an adjustment for electing out of the installment sales on certain 2012 sales or similar wording.
Some practitioners may elect to report the $200,000 on a gross basis and then report the taxable amount as zero. We find that reporting it this way can lead to more letters from the IRS, but either way would result in the correct amount of income reporting.