1099

[4x4American]

Okay...so...reader's digest version: Do I need to give loggers a 1099? 


Reader's digress version:

What started it all:

Well first I was born, then shortly after that I became grown and started a small business.  So I went to the big grade mill and one of the things I did was get a startup packet to sell them logs, as some logs I get in, I don't use and I just bring them there.  Anyways, they gave me a 1099.  So I asked my accountant if I needed to be giving my loggers a 1099.  She said no, just keep good records.  So that was maybe 2 or 5 months ago.  So just this past week I asked her again, just to be sure.  This time she said yes, I need to give my loggers a 1099, and then something about a W-9, and then W-2, if I pay them more than $600 for logs...I reckon we both have no idea.

I was at a concentration yard today drawing logs, and I asked the owner, who's so old he has eyebrow whiskers (which only come with wisdom last time I checked) and he said that I'm not an end user so I don't pay the tax.  He said he's bought and sold millions of bdft of logs and has never issued a 1099. 

I asked another logger too if he ever gets 1099's and he said only from the grade sawmill. 

So what can yawl recommend about this whole tax stuff?

[SLawyer Dave]

So first, I am not giving legal advice, as I am not licensed to practice law in your state.  Second, I don't consider myself an "expert" on Tax Law at all, so take what I say with a BIG grain of salt. 

1099 forms are used to track "miscellaneous" payouts of money.  In California, the 1099 is necessary whenever the pay per year is more than $800 to an individual or business, (unless you are paying an attorney).  Then you must use a 1099 for any amount paid, (the tax people just don't trust us attorneys).   

1099's are generally used to track who you paid "business expenses" out to.  While different jurisdictions have different specific rules, generally if you pay "anyone" more than $1,000 a year, then you are technically required to file a 1099 naming that individual or business and the total amount you paid them during the year.  I have employees in most of my businesses, and they go through a payroll service with all of the fees, forms and "stuff" done for me.  For my assistant in my Criminal Law practice, she wanted to be paid as a "Independent Contractor", as that is how she has always worked.  So for the regular employees, I don't need to do 1099's, because they are covered by the W2s and other employee filings.  For my assistant, however, I am required to issue a 1099 for her pay.

For my property management company, we now 1099 all of our owners, as we collect their rent, pay bills, pay our management fee, and then "pay them the balance".  So technically, even though the money is arguably "theirs", we have possession of it, we pay it out to them, so we need to show the State and IRS what moneys we collected, and where they were paid.  We also 1099 all outside contractors, repairs, services etc.

If push comes to shove, (like an IRS audit), you would be "safer" to file 1099's to anyone you pay out money to, wherein either such payouts are not covered by some other tax form, (such as a Schedule C or W2), or wherein you pay sales tax.  To my mind, there should never be a time when you are going to file a W2 and a 1099 for the same "pay out".  It is either "wages" as covered by the W2, or it is miscellaneous expense, such as you buying logs or supplies or a service from the individual/service.  The intention of 1099s is for the government to track money in and out of "businesses", that is otherwise not reported to the IRS and state.  In reality, they are trying to make sure that people are properly reporting ALL of their income.  If "you" get $200k in 1099's from others, then the IRS is going to be looking to make sure you report what happened to that money.  If you don't account for that $200k, either as "income" or as "business expense through 1099s), then that lack of reporting can trigger an audit.

Back when I did civil law, every time an insurance company made a pay out to a client, they would 1099 ME for the full amount.  I would then process the check, pay any outstanding bills, pay my portion, and then distribute to the client.  Both the debtors I paid and my client would all get 1099's so that I could show the IRS "what portion" of the income, I actually retained, and what was paid out to others.

So best answer I can give is, when in doubt, file a 1099.  They are cheap, and filing one isn't going to hurt you, whereas, not filing one could.

Hope that helps.

Dave

[Ron Wenrich]

According to the IRS 1099-MISC instructions, you don't have to file a 1099 for merchandise. https://www.irs.gov/pub/irs-pdf/i1099msc.pdf   As long as you didn't have a logger cut timber for you, I don't see why you would give them a 1099.  A logger selling you logs is not an independent contractor, he is a vendor.  I think you have to decide if they're providing a service or a good.  You don't get a 1099 from those that you sell lumber to.  I don't give my fuel oil man a 1099 either. 

When I was doing timber sales, I did remind my clients to send me a 1099.  I provided a service. 

[sandsawmill14]

i understand the law as ron described unless there could be something about state taxes which we do not have here

just so everyone is clear by cutting timber for you would be timber you own and you pay a logger by the mbdft/ton to harvest for you whether you keep logs to saw or sell to another mill, if the logger works the timber on the shares or pays you for stumpage and its sold as would be the case of most landowners you would NOT need to a 1099 because the logger becomes the business instead of contract labor   see it clear as mud ;) :D :D :D

[4x4American]

Thanks everyone.

Yes I wouldn't consider buying logs a service, since they are other people's trees being cut.

And no, I dont 1099 my fuel man haha

[Corley5]

  Wood purchased roadside doesn't require a 1099.  The trucking company buys my wood at the landing and doesn't send me a 1099.  They sell it to the mill and the mill gives them a 1099.  If I was paying the trucking to the mill and the mill was then sending me a check I'd get a 1099 from them.  That's how it's done around here  :-\

[SLawyer Dave]

According to the IRS 1099-MISC instructions, you don't have to file a 1099 for merchandise. https://www.irs.gov/pub/irs-pdf/i1099msc.pdf   As long as you didn't have a logger cut timber for you, I don't see why you would give them a 1099.  A logger selling you logs is not an independent contractor, he is a vendor.  I think you have to decide if they're providing a service or a good.  You don't get a 1099 from those that you sell lumber to.  I don't give my fuel oil man a 1099 either. 

When I was doing timber sales, I did remind my clients to send me a 1099.  I provided a service.

The reason you don't pay your fuel man, is because he pays fuel, excise and sales taxes on the fuel he sells you.  So therefore, it is not a "miscellaneous" transaction, that is not otherwise reported to the IRS and state revenue service. 

If you are buying something from a "vendor", but they are not making a report of the sale through sales or excise tax returns, then you *should* 1099 them just to protect yourself. 

As an example, if you buy $50k worth of logs from a landowner.  Unless he is charging you sales tax on that, or there is a wholesale license in place, then you really need to issue a 1099.  Otherwise, your taxes are going to list a "business expense", (purchase of the logs), and then the State or IRS is going to be looking at who you paid that money too.  If you file a 1099, then they will go to that person.  If you don't, then that may trigger an audit, because they want to know why they don't have any supporting tax filings supporting such a large expenditure, purchase, transfer.

This also brings up the point, that even if you are doing Barter, you are *required* by law to file a 1099 to declare the value of the exchange. 

Again, my rule is whether there is a tax declaration or filing that otherwise reflects/reports the transaction.  If there is not, then I am going to file a 1099 to make sure I cover myself and to avoid triggering an audit.

[SLawyer Dave]

  Wood purchased roadside doesn't require a 1099.  The trucking company buys my wood at the landing and doesn't send me a 1099. 

They may not send you one, but that doesn't mean one is not actually required.  Again, unless you are charging sales tax and filing appropriate tax returns, then they should be doing 1099's for purchases from you. 

They sell it to the mill and the mill gives them a 1099.  If I was paying the trucking to the mill and the mill was then sending me a check I'd get a 1099 from them.  That's how it's done around here  :-\

That's because the mill has a multi-million capital investment to protect, so they are going to 1099 everyone who sells to them, (even though such sellers can be construed as vendors) and the logs "merchandise".  Again, it is a matter of how risk-averse you are.  The higher your volume, dollar amounts, or investment, the more exposed you are to potential serious consequences for not filing the proper tax filings, (including 1099s). 

[jwilly3879]

I get a 1099 from two of the mills that buy our wood, one does not. I give 1099's to the truckers, my son who cuts the wood and the landowners. If we have any road work done then the excavator also gets one.

[Corley5]

  At an SFI training session last spring the whole room of loggers, truckers and sawmill owners were told by a tax professional that wood bought roadside does not require a 1099.  His example was if a veneer buyer comes to the landing, picks out, scales the logs and gives a receipt for the amount of $$$ for the logs and then the logger delivers them no 1099 is required.  If the logger takes the logs to the veneer mill where they are scaled and purchased a 1099 is required.  He didn't explain why this was so and no one asked

[Percy]

In canada the laws are different but the tax man is the same. Like a booger on your finger, he is impossible to shake. Several years ago I was audited and the process was enlightening on the info front and just plain lightening on the wallet front. Cost me around 10 grand for not doing things right. My advice is err in the side of the taxman. They will eventually return it if it's not due.

[killamplanes]

I learned one thing from these post. If I'm ever audited I'm going to jail. I'm not good at 1099 ing people...

[kensfarm]

Contact a CPA.. they know the Federal and State tax laws.  The $ spent having the CPA do your taxes is deductible the next year.  My CPA has been doing my taxes since 96.. my experience is it's $ well spent.  I don't worry about taxes anymore. 

[Corley5]

  I've asked the trucking company I now market my saw timber and pulp through about sending me a 1099.  I've asked a couple times actually and I'm always told they don't need to send me one according to their CPA.  That doesn't mean I don't need to pay taxes.  I keep all the check stubs and give them to my accountant at tax time.

[4x4American]

I do have an accountant, and like I said, she told me one thing and then another, so that's why I'm here!  She's gotten me into trouble before but they ate the fines.  They are family friends and have been doing my taxes for years, so it's hard to say hey, you're fired, but I think I might have to for my business sake and get a new one that is more knowledgable with sawmill/agriculture stuff

[Corley5]

  The trucking company I market through has a capital investment of 5 self loading Michigan log trucks, a shop large enough to fit two of these trucks in complete with pups plus another bay large enough for a lead and there's storage for parts inventory, office and break room. 
  4X4, you need a second opinion 

[Ricker]

i worked 26 years for a government tax agency, 10 as an auditor and 15 as a collection and desk audit manager.  The IRS uses 1099 info for a number of purposes, they use it when they look at your return and the gross income better be at least the total amount of the 1099's you received or they will calculate a bill for the difference in tax due and likely will result in a up close and personal complete audit. They use it in collections to find money sources to levy people who refuse to pay their back taxes voluntarily.  Those are the two most common uses.
Whether to file one or not, in general, when buying a tangible item like a log or a truck load of sawn lumber does not require a 1099 to be filed.  If you own a wood lot and hire a man to come in and cut lumber that is for your use, should have a 1099 filed for the money you gave him.

There are exceptions in the tax code to every circumstance you can think of, so as slawyer Dave said, when in doubt file the 1099 and you should avoid 99.9% of problems with the tax man. One last thought for you, make sure you have the backup receipts to everything you write off on your tax return.  In an audit not having a receipt for all expenses will kill you.

[4x4American]

Thanks,

I just remembered that during the process of someone borrowing my identity to get my tax return, I developed a relationship at the local IRS branch.  I will go see that lady and ask her.

[Aidas Survila]

Yes you need whet it gets more than $600. To avoid being penalized, I have to obtain a 1099 form (1099-MISC, in this case) from every loggers/client who paid me more than $600 during the previous tax year—that's a lot of paperwork to keep organized.

[sealark37]

Our tax code is so confused and convoluted that even tax experts offer differing "opinions" about who owes what to whom.        Regards, Clark

[E-Tex]

Hire a "Certified Public Accountant"..... that has experience and knowledge in YOUR field!

It may cost more, but always hire the best CPA, Attorney, and Insurance Agent you can afford!

Many years ago I had a wise businessman tell me...... If you're going to be in business, always have these people on your speed-dial:
1. Your Pastor
2. Attorney
3. Banker
4. CPA
5. Insurance Agent