A New Year Requires New Look at Tax Rules

By Donna Funk | February 15, 2011

In 2011, business owners and managers should be aware of new 1099 reporting requirements, health care reform and accounting pronouncements. Here are a few items to note as you work with your tax consultant in the coming months.

Businesses, including ethanol plants, have a new disclosure requirement in 2011 on their financial statements. The pronouncement changes will affect the level of detail provided to investors, lenders and others throughout financial statements and are a way to provide extra detail behind these transactions.

Fair value measurements include hedging of commodity contracts, typically classified as a Level 1 transaction on financial statements. This year, a reporting entity should separately disclose the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe reasons for the transfers. 

Another pronouncement that could affect ethanol plants includes disclosing subsequent events for entities after June 15, 2010, that are registered with the Securities Exchange Commission (SEC). An entity that is either an SEC filer or holds conduit debt securities that are traded in a public market is now required to evaluate subsequent events through the date that financial statements are issued.

Some good news for ethanol plants comes with the introduction of incentives for businesses to invest in machinery and equipment including a 100 percent bonus depreciation deduction for property purchased and placed into service after Sept. 9, 2010, and before Dec. 31, 2011. In addition, there are numerous credits available depending on plant size, fuel produced and feedstock used.

The 2010 Tax Relief Act extends the reduced alcohol fuels credit for ethanol blenders for one year and retroactively extends the allowance of the alcohol fuels credit and the excise tax refund for alcohol fuel mixtures. Ethanol tariffs have been extended through 2011 as well as a 30 percent investment tax credit for alternative vehicle refueling property.

The news media and business publications have discussed big-time changes due to health care reform legislation, but there’s another layer of this reform. For example, beginning in 2011 a provision in the Patient Protection & Affordable Care Act requires any business to report all payments in excess of $600 for services or merchandise to a third party when the cumulative amount paid during the year exceeds $600. The provision’s aim is to reduce the gap between income that individuals and businesses make and the federal taxes they pay.

Prior to 2011, payments made to a corporation or to any type of business for merchandise were not required to be reported on Form 1099. Under the new law, businesses will be required to submit a 1099 for all purchases, including those from corporations. The exact parameters of this requirement are still being researched but it is possible such things as employee reimbursements for meals and hotels claimed as business expenses will need to be attributed to the specific vendors and 1099s filed as needed. The business could have to send the form to that restaurant or hotel, which can potentially add to the burden of expense reporting.

In the past year, our firm has been a part of numerous presentations on general education of health care reform and how to minimize the tax impact of the new law. Keep in mind, a business with fewer than 25 employees may qualify for a tax credit to offset some health insurance costs.  Other key points for ethanol plant managers this year include a delay of the increase in personal income tax rates until 2013. At that same time, the 3.8 percent tax on unearned income and the 0.9 percent tax increase on Medicare will both take effect.

As the tax changes this year are numerous, it is imperative to consult your tax adviser for solutions to this year’s set of rules.

Author: Donna Funk
Biofuels Group Manager, Kennedy and Coe LLC
(800) 303-3241