What Is Schedule F: Profit or Loss from Farming?
Schedule F: Profit or Loss From Farming is used by farmers with sole proprietorship farming businesses to report income and expenses for the tax year. The form can also be used by corporations, partnerships, estates, and trusts. Livestock, dairy, poultry, fish, and fruit farmers, as well as owners/operators of plantations, ranches, ranges, nurseries, or orchards, are considered farmers for the purposes of Schedule F.
Your farming profit or loss is then transferred to a Form 1040 for computing your total tax liability. Schedule F is to farmers what Schedule C is to other sole proprietors.
Schedule F asks about your principal farming activity or crop; your income from selling livestock, produce, grains, or other products; and whether you received farm income from cooperative distributions, agricultural program payments, Commodity Credit Corp. loans, crop insurance proceeds, federal crop disaster payments, or any other sources.
Schedule F provides different ways to account for your income depending on whether you use the cash or accrual method.
Key Takeaways
- Schedule F is used to report taxable income earned from farming or agricultural activities.
- This schedule must be included on a Form 1040 tax return, regardless of the type of farm income.
- Deductible expenses such as seed, fertilizer, equipment maintenance, and property taxes are also reported on Schedule F to determine the taxable income from farming.
- Schedule F also allows for various farm-related credits and deductions.
Who Can File Schedule F: Profit or Loss from Farming?
Schedule F eligibility hinges on engagement in farming or ranching activities. This may or may not relate to regular and continuous involvement in the cultivation of soil, livestock raising, or other agricultural endeavors.
The IRS typically expects a genuine profit motive. This means that while not every year needs to be profitable, there should be continued effort to operate the farm as a business with the expectation of profitability over time. Schedule F can be used in a variety of situations; for example, it can be used by individuals owning or leasing agricultural land, operating a family farm, or engaging in partnerships.
The IRS is also flexible when it comes to defining what "farming activities" means. Eligibility extends to different types of farming activities such as crop production, livestock raising, poultry farming, and aquaculture. The IRS is also flexible on size, as there is no strict gross income threshold for Schedule F.
How to File Schedule F: Profit or Loss from Farming?
You will file Schedule F with Form 1040, 1040-SR, 1040-SS, 1040-NR, 1041, or 1065. You can download the form on the IRS website or complete it with tax software when filing your taxes.
To fill out the form, you'll need information on the sales of your livestock or crops, equipment expenses and depreciation, insurance expenses, taxes, conservation expenses, labor and employment costs, the rent or lease for vehicles and land, and other farm operating expenses.
You can file the form by mid-January if your business follows a normal calendar year. You can also file it by March 1 if you are filing with a 1040 and can pay the taxes at that time. You will need to file the form by the 15th of the month following the end of your business's fiscal year if the business does not follow a normal calendar year.
Farmers who use the cash method of accounting would report revenue in the tax year when it is received from buyers. Farming expenses are deducted in the tax year when they are paid. Under the accrual method, revenue and expenses are reported in the year when transactions occur, even if money is received or paid out the following year.
If a taxpayer chooses to file an 'Accrual' return, they must complete Parts II, III, and a portion of Part I. Note that some entities may be required to use the accrual method.
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Income Sources on Schedule F
In U.S. agricultural policy, farm income can be divided as follows:
- Gross cash income: The sum of all receipts from the sale of crops, livestock, and farm-related goods and services, as well as any direct payments from the government.
- Gross farm income: The same as gross cash income with the addition of non-money income, such as the value of home consumption of self-produced food.
- Net cash income: Gross cash income less all cash expenses, such as for feed, seed, fertilizer, property taxes, interest on debt, wages, contract labor, and rent to non-operator landlords. It’s a short-term measure of cash flow.
- Net farm income: Gross farm income less cash expenses and noncash expenses, such as capital consumption and farm household expenses. It’s a long-term measure of the farm’s survivability as an income-earning business.
Individuals will be liable for taxes if the farm is operated for profit, whether thetaxpayerowns the farm or is a tenant.
Deductible Expenses
You’ll also need to fill out Schedule F to claim tax deductions for your farming business, which will lower your tax bill. Deductions that you may be able to claim include—but are not limited to—the expenses you paid for:
- Business vehicle(s)
- Chemicals
- Conservation
- Depreciation
- Employee benefits
- Feed
- Fertilizers
- Freight and trucking
- Gasoline and other fuel
- Hired labor
- Insurance
- Interest
- Pension and profit-sharing plans
- Rent or lease fees for vehicles, machinery, equipment, land, and the like
- Repairs and maintenance
- Seeds and plants
- Storage and warehousing
- Supplies
- Taxes
- Utilities
- Veterinary fees
Payments Made to Third Parties
Schedule F also asks if you made any payments during the tax year that required you to file Form 1099 and if you have filed it. An example of a case where you would need to file Form 1099 is if you hired an independent contractor to perform more than $600 worth of work, such as transporting your produce to a weekly farmers market, for your farm business.
Special Considerations When Filing Schedule F: Profit or Loss From Farming
There are many specific situations to keep in mind when filing Schedule F. Family farms often involve multiple family members contributing labor and resources. In this type of setup, the farm's income must be accurately distributed among family members based on their contributions.
Be prepared to substantiate this calculation if/when asked by the IRS. If the farm operates as a partnership, Schedule F reporting should align with the terms of the partnership agreement.
When a farming operation is held in an estate or trust, the individual responsible for managing the estate or trust must still report farming income and expenses on Schedule F. Estate and trust tax rules including specific filing requirements and deductions should still be considered, though.
Just like any other type of business, it's important to keep track of personal spend compared to business spend. Sole proprietors should carefully distinguish between personal and business expenses, as Schedule F reporting should focus on farming income and legitimate business expenses.
The IRS may ask for substantiation on costs being deducted from income or reported as a deduction to gross revenue.
Last, different farming structures may qualify for specific tax credits and incentives. For example, family farms may benefit from the Family and Medical Leave Act (FMLA) credit. Corporate farms might explore incentives related to energy-efficient practices or research and development.
A farm should understand its current operations and future plans, then consult with a tax professional to best understand how to leverage incentives and capitalize on tax benefits.
Other Relevant Documents
For more information, IRS Publication 225, the Farmer’s Tax Guide, is a document that helps those involved inagribusinessnavigate the farming-specific tax code. The document details and outlines how the federal government taxes farms. IRS Publication 225 outlines the different accounting methods that farmers may use for running their operations and how farmers must report farm income.
Along with IRS Publication 225, the Internal Revenue Service (IRS) publishes IRS Publication 51, a document specific to the employers of agricultural workers. Publication 51 provides guidance on how individuals who employ workers in agribusiness must comply withtax withholdings. Also, the U.S. Department of Labor sometimes requires employers to register with the department and does not allow employers to label farm employees as independent contractors.
Should I File a Schedule C or Schedule F?
If you are a sole proprietor whose main source of income is from farming, you should file a Schedule F. Other sole proprietors typically file a Schedule C.
Do I File a Schedule F If I Am Self-Employed?
If you are a self-employed farmer set up as a sole proprietor, you are required to file a Schedule F. If you are self-employed in another industry, you will likely need to file a Schedule C.
Which Farming Profits Do I Report on a Schedule F?
Farm income profits can include money generated by farm or agribusiness operations. Some examples are profits from the sale of crops, livestock, and farm-related goods and services.
The Bottom Line
If you are a farmer and your farming business is set up as a sole proprietorship, you’re required to file a Schedule F to report net profits or losses each tax year. Farming profits or losses are transferred to Form 1040 to calculate your total tax liability for the year. Essentially, Schedule F is to farmers what Schedule C is to sole proprietors in other industries.
