Tax Tips for �Commercial Fishers

Presentation by Jeff Guillory

Sr Tax Preparer

Alaska Business Development Center, Inc.

Required to…

• File Form 1040
• Report Income – Schedule C (sole proprietor)
• Pay Self Employment Taxes – Form SE
• Make Quarterly Estimated Tax Payments – Form ES
• Issue Forms 1099 (captains)

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Report Income

• IRS Code indicates all income must be reported regardless if Form 1099 is received
• Fishing income should be reported on Schedule C
• Flows through to Form 1040
• DO NOT report fishing income on Line 21 Other Income, Form 1040

Business Expenses

• Business expenses are the cost of carrying on business
• Deductible if the business is operated to make a profit (not a hobby)
• Expenses must be ordinary and necessary
• Ordinary – common & accepted in industry
• Necessary – helpful & appropriate for your business

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Deductions

• Expenses are typically deducted in year they were purchased
• Fully deducted if used within that year
• Examples:
• Bait, insurance, contract labor
• Interest on loans to purchase business assets; loan payment not deductible

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Meals Expense

• Groceries/Meals only deductible when
• You are away from your tax home; AND
• Your trip is overnight or long enough you need to sleep/rest to properly perform your duties
• If meals are determined to be applicable
• Reduce total calculated amount by 50%

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Crewmember Meals

• If captain pays for the meals
• AND crewmembers are required to share in the burden
• THEN the captain cannot take a deduction for meals provided to the crewmember
• HOWEVER the crewmember can take the deduction

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Capital Expenses

• Capital expenses or asset purchases
• Considered as investment into the business
• Extended life beyond one year
• Able to recover costs over its useful life through depreciation or amortization
• Examples: vessel, motor, permit

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Personal Expenses

• Personal expenses are not deductible
• Examples: housing, utilities, fuel, etc.
• Commuting to tax home or place of business
• Smokes/Chew are not deductible
• Albeit, they are ordinary (many partake) , they are not necessary

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Form SE

• Form SE used to compute self employment tax
• Self employed individuals are required to pay self employment taxes
• Taxes include Medicare and Social Security Taxes
• Amounts flow through to Form 1040

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Estimate Tax Payments

• Self Employed required to make quarterly estimated tax payments
• Complex worksheet to compute estimated amount; or can base it on last year ‘s tax
• Quarterly payments due the 15^th of the month following the end of the quarter
• First Quarter (Jan-Mar) – payment due April 15th

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Tax Due Dates - Fishermen

• Avoid estimated taxes
• File your return and pay entire tax due by March 1
• Generally applies if fishing income is 2/3 of total income
• OR make a single estimated tax payment by Jan 15
• Otherwise you may have to make quarterly payments
• Fees assessed if required payments are not made

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FILE YOUR RETURN!

• Failure to File Penalties
• Failure to Pay Penalties
• Accrue Interest
• Extension
• Extension to file NOT an extension to pay

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Unable to Pay

• File your return
• Pay as much as possible
• Request an Installment Agreement when filing your return
• Or contact the IRS to request a short term extension
• Based on amount and duration to pay

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IRS Notices

• OPEN all mail from the IRS
• READ the notice
• RESPOND to the request
• Do not let a problem become a crisis

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Form 1099

• Payers should file Form 1099 for each person paid during the year of at least $600
• Services performed by someone not an employee (Box 7)
• Cash payment for fish purchased from anyone in the business of catching fish (Box 7)
• CAPTAIN: should receive from purchaser of catch (Box 7)
• Fish boat proceeds
• CREWMEMBER: should receive from captain (Box 5)

Preparing Form 1099

• Captains should issue one form to each crewmember
• Two separate form per page
• Payer Information: captain name, address and EIN or Social Security number
• Recipient Information: crewmember name, address and EIN or Social Security number
• Amount: crew shares paid (Box 5)

Preparing Form 1096

• Form 1096 is a summary of all Forms 1099 issued
• Captain’s name, contact information and EIN or SSN
• Total number of Forms 1099 issued (quantity)
• Total amount paid (dollars)
• Check box 1099-MISC

Due Dates: Form 1099

• January 31^st – all Form 1099 need to be issued to crewmembers (postmarked)
• Copy B & Copy 2
• February 28^th – due to the IRS
• Copy A of Form 1099 (do not separate 1099s)
• Form 1096
• Keep copy of all Forms 1099 & 1096 for your records

Resources

• www.irs.gov
• Fish Tax Center
• Form 1040 Instructions
• Form SE Instructions
• Form 1099 Instructions
• Pub 505 Tax Withholding & Estimated Tax
• Pub 334 Tax Guide for Small Business
• Pub 541 Partnerships; Pub 542 Corporations