Watch Your Crop Insurance Form 1099s This Year
As we have previously noted several times, there will be lots of crop insurance claims paid out this year. A form 1099 will be issued by the crop insurance company for these claims. The form 1099 will report the gross amount of crop insurance “paid” to the farmer, however, in many cases, this will not equal the check received by the farmer. Instead, the check issued by the insurance company may net out any crop insurance premium that the farmer may owe. If the farmer is not careful in how they account for this, they may end up reporting more farm income than they should.
Here is an example:
Farmer Sue had a crop insurance claim in 2014 of $300,000. She owed a premium payment of $45,000 that the crop insurance company netted out when they sent a check to her for $255,000 ($300,000 – $45,000). When filing her return, she provided a copy of the form 1099 to her CPA, however she did not list the $45,000 premium “payment” in her farm accounting records to her CPA since she had not written a check for the premium. Therefore, her farm income was overstated by $45,000.
This situation usually occurs with farmers who file a cash basis Schedule F tax return on Form 1040 and simply provide an accounting of expenses on a tax organizer. It can be extremely easy to not record the crop insurance premium payment since no check was written by the farmer.
If you think this may have happened to you in 2011-2013, you can still file an amended tax return and get an income tax refund.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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